Minimum energy efficiency standards (MEES) need to be achieved before commercial property can be let in England and Wales, giving landlords challenges around compliance and sustainability.

MEES regulations have applied to the granting of new leases and lease renewals since April 2018 but as from April 1st 2023, landlords would be in breach if they continue to let a commercial property that has an EPC rating below E. The regulations differ in Scotland but in general MEES is part of the UK government’s commitment to achieving net zero emissions in the country by 2050.

The EPC minimum for commercial properties is set to rise to C by 2027, with the minimum requirement increasing to B by 2030. EPC certificates are valid for ten years unless significant changes have been made to the property.

Non-compliance could lead fines of up to £150,000 for serious breaches and potential publication of non-compliant landlords on the Private Rented Sector (PRS) Exemptions Register, which could have impacts on reputation.

Potential fines

The regulations advise that for breaches of less than 3 months there is a fine of 10% of the rateable value, ranging from £5,000 to £50,000, while breaches of more than 3 months could attract a fine of 20% of the rateable value, with a minimum of £10,000 and a maximum of £150,000. (1)

The MEES Regulations will be enforced by Local Weights and Measures Authorities (LWMAs). LWMAs will have powers to impose civil penalties which are set by reference to the property's rateable value. (2)

Domestic sector

For the domestic property rental sector in England and Wales, Energy Security and Net Zero Secretary Ed Miliband said in July that the government would demand that landlords raise the standard of their accommodation to a proper energy performance certificate standard C by 2030, from the current minimum EPC of E.

SaveMoneyCutCarbon’s view is that the property sector will play a big part in reducing carbon emissions and maximising energy efficiency to tackle climate change, Commercial real estate (CRE) in the UK is responsible for about 70% of the carbon emissions from non-domestic buildings, which account for 23% of all carbon emissions in the country. (3)

EPCs reflect the energy efficiency of a building, rating from A (best) to G (lowest). The certificate also shows the costs of heating and lighting along with CO2e  emissions. They also flag the potential energy efficiency rating if recommended improvements are made and show how to achieve a better rating. EPCs are valid for 10 years from the date of issue.

Valid exemptions

Landlords can register valid exemption. Currently, a property can be let if a landlord has carried out the recommended energy improvement works, but the property still has an F or G rating,

·      Landlords do not need an EPC if they can demonstrate that the building is:

·      Listed or officially protected and the minimum energy performance requirements would unacceptably alter it

·      A temporary building only going to be used for 2 years or less

·      used as a place of worship or for other religious activities

·      An industrial site, workshop or non-residential agricultural building that doesn’t use much energy

·      A detached building with a total floor space under 50 square metres

·      Due to be demolished by the seller or landlord and they have all the relevant planning and conservation consents

A building is also exempt if it’s due to be sold or rented out with vacant possession; it’s suitable for demolition and the site could be redeveloped; the buyer or tenant has applied for planning permission to demolish it. (4)

The Energy White Paper “Powering our net zero future” the target of EPC B by 2030 would cover around 85% of the non-domestic rented stock, deliver up to 10.3TWh in energy savings by 2030, and 4.1MtCO2e of carbon (non-traded) over Carbon Budget 5 (2028-2032). (5)

SaveMoneyCutCarbon’s view is that landlords might be left with stranded or obsolete assets if improvements are not made. Making adequate energy-efficiency upgrades on a on-going basis can make an impact, helping landlords to meet evolving compliance rules.

Scotland energy efficiency

In Scotland, all non-domestic buildings are required to produce an Energy Performance Certificate (EPC) on sale or rental to a new tenant. Since 2016 regulations have required non-domestic buildings over 1000 square metres to produce an Energy Action Plan at the point of sale or rental. (6)

Also, the Scottish government introduced the Energy Efficiency Standard for Social Housing (EESSH) 10 years ago. As a result, homes in the social rented sector are now some of the most energy efficient in Scotland, with 85% already achieving EPC D or above. (7)

Energy efficiencies

Appendix B of the government’s guidance on the Non-Domestic Private Rented Property Minimum Standard has an extensive list of potential energy improvements. (8)

Energy-efficiency measures

In SaveMoneyCutCarbon’s experience, effective energy-efficiency measures could include:

·      LED lighting

·      Lighting controls

·      Solar PV panels.

·      Demand-controlled ventilation

·      Air-source heat pumps

·      Water-saving devices.

Conclusion

In SaveMoneyCutCarbon’s view, the impact of MEES on the real estate sector will be significant, with both challenges and opportunities in compliance and sustainability. Aside from potential fines, it might well be that non-compliance would affect rental incomes, while reducing investment and lending security value, as well as market demand.

Balanced against these pressures, landlords can ensure their properties are both compliant and sustainable through regular energy-efficiency audits and improvements.

Bibliography

1 “What impact will new minimum EPC requirements have?” (Accessed November 2024) https://ww3.rics.org/uk/en/journals/property-journal/epc-requirements-commercial-property.html

2 “The Non-Domestic Private Rented Property Minimum Standard  (Accessed November 2024) https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1148676/non-dom-private-rented-property-minimum-standard-landlord-guidance.pdf (© Crown copyright. OGL)

3 “Commercial Retrofit” (Accessed November 2024) https://ukgbc.org/our-work/topics/advancing-net-zero/commercial-retrofit/

4 “Energy Performance Certificates for your business” (Accessed November 2024)  premises https://www.gov.uk/energy-performance-certificate-commercial-property#:~:text=Exemptions,for%202%20years%20or%20less (© Crown copyright. OGL)

5 “The Non-Domestic Private Rented Sector Minimum Energy Efficiency Standards” (Accessed November 2024) https://assets.publishing.service.gov.uk/media/6051337ed3bf7f0453f7b992/non-domestic-prs-mees-epc-b-future-trajectory-implementation.pdf  (© Crown copyright. OGL)

6 “Energy efficiency in non-domestic buildings” (Accessed November 2024) https://www.gov.scot/policies/energy-efficiency/energy-efficiency-in-non-domestic-buildings/  (© Crown copyright. OGL)

7 “Energy efficiency in homes” (Accessed November 2024) https://www.gov.scot/policies/energy-efficiency/energy-efficiency-in-homes/ (© Crown copyright. OGL)

8 “The Non-Domestic Private Rented Property Minimum Standard  (Accessed November 2024) https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1148676/non-dom-private-rented-property-minimum-standard-landlord-guidance.pdf (© Crown copyright. OGL)