Commercial Landlords: Do Your Properties Meet EPC and MEES Requirements?

New Minimum Energy Efficiency Standards (MEES) came into force on 1 April 2023, which imposed tougher Energy Performance Certificate (EPC) requirements on landlords of commercial properties.

The rules, which made it unlawful to lease a commercial property with an energy rating of F or G, are part of the UK Government’s push to reduce emissions to net zero by 2050 and mirror changes already made in the country’s domestic private rented sector.

In this blog, Berlad Graham’s Commercial Property solicitors consider the new MEES regulations and examine the impact of the changes on England’s commercial property landlords.

 

What are MEES?

MEES are regulations that outline the overall minimum energy efficiency rating a property must have before it can be rented out or sold.

 

What is an EPC?

An EPC is a rating given to a property to show its energy efficiency. Landlords are legally required to get an EPC when a property is built, sold, or let out to a tenant, although some exemptions apply.

 

What are the new rules?

Previously, landlords of commercial properties in England and Wales could not grant a new lease to a tenant unless a property had an EPC rating of E or higher. However, this restriction did not apply to existing leases.

From 1 April 2023, this restriction has been scrapped, meaning that commercial buildings that do not meet the minimum EPC rating of E or above are now prohibited from being traded or leased,

unless a valid exemption has been registered.

 

What are the exemptions?

Certain exemptions apply, including:

• New landlord exemption. There is a temporary exemption of six months for new landlords to give them time to comply.
• Devaluation exemption. A landlord is not required to undertake energy efficiency improvements that would reduce the market value of a property by more than 5%.
• Consent exemption. A property is exempt where the landlord cannot increase the energy efficiency of a sub-standard property because either a tenant’s consent is required and has been refused or third-party consent is required and has been refused.

Exemptions are not automatic, and a landlord must register any exemptions on the Private Rented Sector (PRS) Register to rely on them. They are also time-limited, and landlords must regularly review their position to ensure they continue to comply.

 

Who is responsible for complying with MEES?

It is the landlord’s responsibility to comply with MEES. Landlords are the only party that can face sanctions under the regulations.

 

What are the penalties for non-compliance?

Landlords face financial penalties and publication on a public register of non-compliance for failure to comply with the regulations. Financial penalties are based on the property’s rateable value and are between £10,000 – £150,000 per breach.

 

Will there be any more changes?

Requirements will likely tighten as the government continues its push to reduce carbon emissions and looks for new ways to achieve energy-efficient construction.

The government is expected to introduce new legislation raising the minimum EPC rating for commercial properties to a rating of C or higher by 2027 and B or better by 2030.

 

What has been the impact of the MEES changes?

Despite these changes, it was reported earlier this year that less than a third of businesses knew how energy efficient their office is.

In addition to financial penalties, and other sanctions imposed on commercial landlords whose properties do not meet the new requirements, the inability to rent out their premises will prove extremely costly.

According to a report in Property Investor Today, 24.1 million square feet of commercial space in London (the equivalent of 20 Shard buildings) already fails to meet the new EPC standards, placing £1.4bn of annual rent at risk this year.

The report, which draws on data from commercial real estate industry specialist EG, reveals that approximately 95.6 million square feet of commercial space, equivalent to a staggering 80 Shard buildings, may become unrentable across England unless commercial property owners take immediate action.

 

What will happen if commercial landlords fail to act?

With EPC requirements only likely to become more stringent, commercial landlords must introduce changes now to ensure their properties comply with current regulations and are in a strong position for the future.

Making even small improvements during a building’s lifecycle can make a big difference and ensure landlords stay on top of EPC requirements as they evolve.

Properties with lower EPC ratings will find it difficult to attract tenants and fail to meet the market demand for energy-efficient, sustainable buildings.

Landlords that do not prioritise energy-efficiency improvements in their commercial properties will likely suffer substantial financial losses and contribute to reduced market liquidity.

Failure to update MEES in time to meet the expected changes to EPC ratings in 2027 and 2030 will elevate the potential risk to regional rent to a staggering £3bn and £4.8bn, respectively, according to EG’s report.

 

 

Commercial Property Solicitors Uxbridge

If you are a commercial landlord, and want some advice or guidance about the new MEES and EPC requirements, please get in touch with Berlad Graham today.

Our experienced commercial property team provides specialist advice to investors, developers, owners, landlords, and tenants and can help answer any queries about the new regulations and their impact.

To speak to one of our experienced specialist commercial property solicitors, please call 0330 175 5655 or email info@bglaw.co.uk.

To find out more about our commercial property practice, click here.