Preparing your commercial property for new energy efficiency laws

On behalf of Attwaters Jameson Hill posted in Corporate, Company and Commercial on Friday, July 7th, 2023

Upcoming changes to the Minimum Energy Efficiency Standards (MEES) mean that the owners of commercial buildings must be prepared or face harsh penalties.

Currently it is a requirement to let any commercial property that they have an EPC rating of D as a minimum – but by 2030, the minimum rating is expected to be B. This means that commercial landlords potentially have a great deal of retrofitting work to undertake – and not a lot of time to do it.

What does the future hold?

The following timeline has been proposed by the government in the runup to 2030, as follows:

2025 – all landlords must submit a valid EPC for each property they are letting to a new PRS (Private Rented Sector) Exemption and Compliance database.
2027 – the minimum rating for sale or letting of commercial property will increase to band C. Landlords will have to provide an existing C-rated EPC or obtain a new one demonstrating they have improved the property to the required level. If it is not possible to increase the property’s rating to a C, they must show that they have taken measures to achieve the highest possible rating and register an exemption.
2028 – landlords must submit new EPCs to the PRS database.
2030 – the minimum rating required will increase to band B. Again, landlords will have to provide an existing B-rated EPC or obtain a new one demonstrating they have improved the property to the required level. If it is not possible to increase the property’s rating to a B, they must show that they have taken measures to achieve the highest possible rating and register an exemption.

Penalties for non-compliance

If a landlord sells or lets a commercial property without an EPC at the appropriate grade they could face harsh financial penalties as well as reputational damage.

The monetary sum a landlord could be fined depends on the amount of time they are found to have been non-compliant. If they have been letting a commercial property in breach of the regulations for less than three months, the penalty is up to 10% of the building’s rateable value, capped at a maximum of £50,000. For non-compliance lasting more than three months, the penalty increases to 20% of the building’s rateable value, capped at a maximum of £150,000.

Exemptions

There are some exemptions to the new regulations, which landlords must register on the PRS Exemptions Register in order to avoid penalties. These are:

‘High cost’ exemption – this applies if even the cheapest recommended energy efficiency improvement would cost more than £3,500.
‘7 year payback’ exemption – this applies if the landlord of a commercial property can prove that the cost of making recommended energy efficiency improvements would be higher than the savings they’d make on energy bills over a period of seven years.
‘All improvements made’ exemption – this applies if the landlord has made all possible energy efficiency measures to the property and it still doesn’t meet the minimum standard.
‘Wall insulation’ exemption – this applies where installing wall insulation in the property would damage the fabric and structure of the property.
‘Consent’ exemption – this applies when a landlord cannot obtain third-party consent (e.g., from a local planning authority or a mortgage lender) for an improvement that legally requires this consent.
‘Devaluation’ exemption – this applies where a RICS Chartered Surveyor has advised the landlord that the recommended energy efficiency improvements would reduce the market value of the property by more than 5%.
‘New landlord’ exemption – a temporary exemption of six months is available in specific, limited circumstances to those who have become a landlord suddenly, so it would be unreasonable to expect them to comply with the regulations immediately.

Don’t get caught out

In June 2022, the method for assessing EPC ratings changed. Over the past decade, more and more electricity has been coming from sustainable and renewable sources – according to a 2023 parliamentary report, around 60% of electricity now comes from low-carbon sources. To reflect this, new EPC assessments will likely favour properties heated by electricity and potentially downgrade properties heated by gas.

Therefore, even if you believe that your property is well prepared for the proposed changes in 2027 and 2030 (i.e., all commercial properties will have to achieve a C and then B rating, respectively), it is worth considering that an EPC issued prior to June 2022 might well result in a different rating today. To ensure you don’t get caught out, landlords may want to consider seeking a draft EPC (which you don’t lodge) before your current certificate expires. This will give you an idea of your property’s true rating, meaning that you can plan for any works that might be needed to remain compliant over the next decade.

Sound legal advice for commercial landlords

Attwaters Jameson Hill’s Commercial Property team is on hand to deal with any questions and concerns you may have about the Minimum Energy Efficiency Standards and how you can ensure you’re prepared for the upcoming changes.

Simply email us at enquiries@attwaters.co.uk or telephone 0330 221 8855 and we’ll be happy to advise.