Director, Ian Eggleton takes a look at the changes to the Minimum Energy Efficiency Standards (MEES) regulations and their impact on landlords.
For commercial real estate landlords, the incoming Minimum Energy Efficiency Standards (MEES) regulations mean energy-efficient buildings will go from being a “nice to have” to a legal requirement.
The energy we use for heating and powering our non-domestic buildings is responsible for around 12 per cent of the UK’s emissions. Around 60 per cent of today’s non-domestic buildings will still exist in 2050, representing around 40-45 per cent of the total floor space.
Under the current regulations a minimum standard of band E applies. It is unlawful to let a commercial premises which falls below this standard. From April 2023 this requirement is extended to existing lettings, making it unlawful to continue to let a property which fails to achieve an E.
Standards to tackle the performance of commercial buildings have been in place for some time, but new guidance will seek to drive improvements in the performance of existing real estate.
What is an EPC Rating for Commercial Buildings?
An Energy Performance Certificate (EPC) is a certificate (and associated report) that sets out the energy efficiency rating of a property and contains recommendations for ways in which the efficiency of the property could be improved.
Virtually all domestic and non-domestic buildings sold, rented out or constructed since 2008 must have an EPC. An EPC may also be required when a property is altered in particular ways.
How is an EPC Rating for a Commercial Building Calculated?
An EPC rating is based on several factors, from the construction materials to the lighting used inside.
A qualified Non-Domestic Energy Assessor (NDEA) will examine the size of the building, the cavity wall and attic insulation, and HVAC system to assess the energy efficiency grade.
EPC Certificates are graded on a scale of A-G. The best result you can achieve is an A grade (most efficient) and the lowest being G (least efficient).
An A result has a rating of 0-25. A zero-rating is defined as the performance of the building that has zero net annual CO2 emissions.
What About Listed Commercial Buildings?
There is a common misunderstanding relating to listed buildings and whether they are exempt from the requirement to obtain an EPC.
Listed properties, and buildings within a conservation area, will not necessarily be exempt from the requirement to have a valid EPC and it’s down to the owner of a listed building to understand whether or not their property is required to have an EPC.
An EPC is not currently required for a listed property or building within a conservation area when it is sold or rented in so far as compliance with minimum energy performance requirements would unacceptably alter its character or appearance.
Examples of energy performance measures which may alter character or appearance (or as a minimum are likely to require local authority planning permission to install on a listed building) include external solid wall insulation, replacement glazing, solar panels, or an external wall mounted air source heat pump. Where character or appearance would not be altered by compliance with energy performance requirements, an EPC may be legally required.
With regard to Listed buildings, exemptions can be registered, however an EPC still needs to be prepared to determine whether improvements to energy performance could be undertaken without detrimental impact on the historic character or appearance of the building.
What about future requirements?
With the government’s aim to become carbon neutral, it is reviewing proposals which would mean a minimum threshold of band B by 2030. It is proposed that a phased approach be adopted:
• April 2025 – landlords must submit a valid EPC and there is then a 2-year window for compliance
• April 2027 – unless the EPC is band C or above, landlords must obtain another EPC to show that the building has been improved to a band C or have achieved the best available taking a reasonable view as to cost.
Currently the requirement for an EPC is triggered at the point of a letting and the EPC is valid for a period of 10 years after which it expires and the requirement for a new EPC is not triggered until the building is re-let. Another key change of the new proposals is that a building must have a valid EPC at all times.
The requirement to upgrade buildings to achieve a band B will have a cost implication for landlords, however this may be balanced by a greater ability to let the property and potentially an increased capital value.
Landlords may seek to pass some of the burden onto tenants, particularly where there is a lease renewal situation and the tenant will not be vacating and thus restricting landlord ability to carry out works. There may need to be a more collaborative approach between landlord and tenant as ultimately it is the tenant that will benefit from lower building running costs.
For further advice on your legal obligations when renting a commercial property or any aspect of buying, renting or selling commercial property, contact Ian Eggleton on ian.eggleton@evansjones.co.uk
Ian Eggleton is Director of Building Consultancy at Evans Jones Planning and Property Consultancy, based in Cheltenham, with offices in London and Reading.