As our Christmas countdown continues and the temperature drops we focus on 9 key elements of the minimum energy efficiency standards regime (MEES Regulations) as it applies to commercial buildings.

  • To reach its net zero carbon emissions by 2050 target the government must look at the decarbonisation of the UK's commercial building stock. Failure by developers and landlords to confront the energy efficiency of their buildings will not only cause legal problems but have reputational and valuation consequences.
  • Existing buildings have been targeted for a while. The MEES Regulations mean that from 1 April 2023 landlords may not let, or continue to let, a commercial property with an EPC rating below E until they have either carried out all relevant energy efficiency improvement works to bring the property above an E rating, or registered one of the permitted exemptions.
  • In June 2022 the government changed the software used to establish the EPC rating, penalising gas used for heating, so an existing building may obtain a lower rating when the EPC is renewed even if no changes have been made so owners and landlords must be careful in making assumptions about a building's rating and factor this into their planning.
  • Exemptions for commercial property include the "7 Year Payback" exemption where the cost of purchasing and installing a recommended improvement does not meet a 7 year payback test and an "All improvements made" exemption where all the energy efficiency improvements have been made and the property remains below an EPC rating of E. All exemptions must be registered before they can be relied upon and the exemptions are time limited so the landlord will need to re-assess ad re-apply for the relevant exemption on expiry. See here for more detailed government guidance on exemptions. Although seeking an exemption may seem desirable, increasingly in our experience landlords are not looking to rely on them but prefer to make the necessary improvements to the building.
  • It is important for landlords to maintain control over the EPC process (particularly as the minimum standards rise – see further below). Controls range from procuring the EPC itself to prohibiting alterations which would adversely affect the energy rating to recovering costs in relation to expenses incurred.
  • There is no positive obligation on a landlord to make energy efficiency improvements but landlords who fail to comply with the MEES Regulations risk reputational damage (a publication penalty may be published on the public part of the PRS Exemptions Register) as well as financial penalties (civil penalties which could be as high as £150,000). There may also be lost income from possible lower rents to reflect lower energy efficient buildings or a need to do works and sub-standard properties may put off prospective tenants or purchasers. Non-compliance does not invalidate the lease.
  • The environmental performance of buildings is manifesting itself in a range of "green" provisions both in new build arrangements and on new lettings and lease renewal, which may refer to target EPC ratings to be achieved by landlords at base build or prevent tenants from making alterations which adversely affect the building's EPC rating or give landlords control over procuring EPC ratings and imposing a duty for tenants to co-operate in the EPC procurement process (or a combination of any or all of these).
  • Minimum standards will rise. By 2030 all commercial buildings will need to have an EPC rating of B (with a possible interim milestone of a C rating by 2027). See our blog on this.
  • The government is also consulting on proposals to address the fact that in large and complex buildings there is little correlation between a building's EPC score and its actual energy consumption and carbon emissions. One solution is the introduction of a national performance based annual rating for large buildings. We blogged on this as far back as May 2021 here and still await further developments (see here for the government's consultation).

Links to the previous posts in our Yule Blog series are below – check back tomorrow for our 8th day's post!

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