201911.18

Energy efficiency requirements in commercial buildings

Since April 2018, it has been obligatory on any commercial letting for properties to meet minimum energy efficiency standards (MEES) for the prospective tenant. Unless the property has a valid energy performance rating (EPC) of E or above, it is illegal to let any commercial property excluding certain exceptional circumstances.

This condition will expand to cover renewal leases from 1 April 2023 onwards, requiring landlords to make necessary improvements to properties to meet the accepted standard if they want to continue to let the properties even to existing tenants.

Approximately ten years after the EPCs were first introduced, the government is now consulting as to whether the minimum EPC rating should be improved to “B” or “C”. While most solicitors agree that, the higher rating would bring more properties within its scope, landlords would be obliged to spend proportionately more on improving their letting stock.

In light of increasing concerns about global warming and climate change, and the government’s commitment to help businesses reduce their energy use, the consultation offers the opportunity to take proactive steps to comprehensively improve the country’s housing stock and commercial buildings in a short period of time.

Other questions raised by the consultation include whether there should be intermediate steps before the deadline of EPC with a “B” rating by 2030, requiring landlords to meeting “D” and “C” minimum ratings prior to this date.

Some tenants will be focused on EPC ratings when looking for a new property, but for the majority, their priority is likely to be the location of their new premises and the annual costs of renting the property such as annual rent, service charge (if applicable) and business rates.

Landlords themselves are more likely to be motivated by reputation management to make energy efficiency improvements to their portfolio in advance of any statutory deadline, but it is recommended that improvements are factored into any long-term refurbishment and maintenance schedule to spread the necessary costs and help landlords manage their capital expenditure budget.

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If you would like to discuss any of the issues raised by this article, please contact our expert commercial property law solicitor, Kathryn Johns, at kathryn@gordonsols.co.uk.