Changes to minimum energy efficiency standards for commercial properties
Unsurprisingly, in the current “climate”, energy efficiency is big news for the property market. It will remain topical for some time as further changes are now imminent in relation to Minimum Energy Efficiency Standards (MEES) for commercial properties in the UK.
Since 1st April 2018 it has been unlawful for a landlord to grant a new lease of commercial property with an EPC rating of lower than E, unless an exemption applies. However, from 1st April 2023 this rule will apply to all existing leases. This means it will be unlawful for a landlord to continue to let a commercial property with an EPC rating of less than E, even if the tenant has been in situ for many years.
At the end of 2020 the Government set out specific steps it was planning to take over the next ten years in order to meet its net zero emissions commitment. This included a framework for all commercial property to reach a target EPC rating of B by 1st April 2030.
The latest consultation seeks to provide the framework for a phased implementation which is likely to be made up of two “compliance windows”.
For compliance window one, the landlord will be required to submit a valid EPC by 1st April 2025. If the rating is C or above, the property will be compliant for this window. If it is not, the landlord must undertake works necessary to improve the rating to a C or above by 1st April 2027, unless it can show the application of an exemption.
The second compliance window will commence on 1st April 2028. Again, landlords will need to present a valid EPC and, if the property has a rating of less than B, the landlord must carry out works required to achieve a B rating by 1st April 2030, unless a valid exemption applies.
It is proposed that the above Minimum Energy Efficiency Standards (MEES) at each enforcement date will be qualified by a seven year payback test. In other words, the proposed energy efficiency improvements achieve an energy efficiency payback of seven years or less. If the works necessary to achieve the required standard do not pass the seven year payback test, the landlord will only be required to reach the highest EPC rating possible within such test.
Currently, it is the landlord’s responsibility to comply with Minimum Energy Efficiency Standards (MEES). It is possible that future legislation will require a more collaborative approach between landlords and tenants and even potentially impose obligations on tenants.
The property industry awaits the legislation which will confirm the framework for achieving the Government’s 2030 target. There can however, be no question that commercial landlords need to start planning for these requirements sooner rather than later.