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The present and future for energy efficiency standards in commercial properties

Environmental issues are increasingly becoming a major concern within society and inevitably a key priority forming part of government policy. In the context of commercial property, this is most noticeable with the rules on ascertaining the energy efficiency of properties, by way of an Energy Performance Certificate ("EPC"). More than a quarter of the UK's emissions are caused by business and industry, and a significant proportion of these are created by the energy used to heat commercial properties.

Since April 2018, The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 ("the MEES Regulations") have made it unlawful for a landlord to grant a new lease for a property which has an EPC rating lower than band E (i.e. a rating of either "F" or "G"), subject to certain exceptions.

If the property falls within the scope of the MEES Regulations and is revealed to have an EPC rating of "F" or "G", before the property is let the landlord must first carry out "relevant energy efficiency improvements" so that the property's energy rating is raised to at least "E". If a landlord cannot (or does not wish to) carry out any improvements, there are some exemptions that the landlord may seek to invoke to avoid carrying out improvements, although the exemptions will need to be formally registered and will only temporarily halt the need for the works to be carried out.

As of now, the MEES Regulations only apply to the grant of new leases, but from April 2023 the minimum energy standard will also apply to existing leases.

More recently (October 2019), the government has published a consultation aimed at tightening the energy efficiency standards even further, setting out a proposal for the minimum standard by 2030 to be increased to an energy rating of "B". Such a move would bring approximately 85% of commercial properties within the scope of the MEES Regulations although at the same time it is likely to involve a significant amount of additional capital being incurred by landlords before they can let out a property.

The current MEES Regulations and future proposals will apply just as closely to properties held within pension schemes. If a property is already subject to a lease, the April 2023 deadline will soon be on the horizon, meaning that EPCs will need to be reviewed (and obtained if required) to ensure the minimum rating is achieved. Those pension schemes holding properties just about meeting the minimum threshold (for example, with a rating of "D" or "E") will still need to be mindful of the future plans to raise the bottom rung of the energy efficiency standards ladder and its implications.

For more information contact Mohassan Mehmood in our Commercial Property department via email or phone on 0333 207 1161. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

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