Minimum Energy Efficiency Standards for commercial property: clarity at last?

MEES and EPC regulations finally get some direction – but questions remain…

The scenario

You’re the landlord of a commercial building. It has an EPC D rating, so you’re fine to let it out at the moment under the current “Minimum Energy Efficiency Standards” (“MEES”) rules. Successive governments have been talking for more than five years about tightening the rules, but with no one giving you the certainty that you need to plan how you run your business. You’ve been wondering whether and when to invest in energy efficiency improvements, but didn’t want to waste money doing works that could potentially not meet the standards required.

You don’t doubt that climate change is a real concern and understand that stats from last year showed that 22% of UK greenhouse gas emissions come from buildings, second only to domestic transport.

Now, finally, there is some news.

What’s the current position?

Currently, a landlord of a property with an EPC rating of less than E can’t grant a new tenancy or continue to let a property unless the property benefits from one of a number of specific exemptions (and, to be effective, any exemption claimed must be registered). There was talk in the market that the hurdle of the E rating was due to be raised to C in 2027 and B in 2030. There was no specific legislation to back this up, and there was a concern that practically this would make a number of properties unlettable. Estimates from 2025 suggested that up to 80% of properties could become unlettable in 2030, should these targets have been introduced.

What’s changing?

The good news is that the 2027 and 2030 hurdles have been scrapped. Instead, from 2031, all non-domestic privately rented buildings over 1,000 square metres (10,760 square feet) must reach an EPC B rating. This comes with a limitation that buildings will only need to reach a B standard “where cost effective”. The seven-year payback test will continue to apply, meaning landlords are only obliged to carry out works costing the same or less than the expected energy bill savings over seven years. The current list of potential exemptions also continues to apply.

Putting it in context

According to JLL, across England and Wales 69% of industrial spaces, 68% of offices and 51% of retail currently sit below a B rating. The Government is predicting savings of £360 million annually for tenants in units which fall within the scope of this legislation. In its 2021 consultation, the Government noted that buildings larger than 1,000 sq m account for 5% of total commercial stock, but about 50% of energy used. The logic is that focussing on buildings over 1,000 sq m targets action where the rewards are likely to be greatest.

More broadly, at a time when smaller landlords are being increasingly hit by rising costs and a slower market as tenants navigate the recent increase in business rates, the Government presumably had one eye on a negative reaction from the smaller end of the market.

Questions remain…

The most obvious initial question is how the 1,000 sq m threshold will be applied in practice. Will it relate to the total size of a building or to individual units within it? On what basis will it be measured? Will mezzanines be included?

Hopefully we’ll have answers to these questions soon. The Government’s response notes: “Further detail on these proposals and implementation of the threshold will be set out in the forthcoming government response to the public consultations.” Any further clarity will be welcomed by the industry as soon as possible. After all, we’ve already been waiting for five years...!

The key message…

EPC and MEES compliance has been a major concern for commercial landlords for years. The Government’s new proposals provide some breathing room for smaller landlords, but may cause real headaches for larger ones. The direction of travel is clear though – energy efficiency standards are tightening. Landlords of larger buildings need to start planning now for the 2031 deadline. Our expert team deals with EPC compliance, lease negotiations and property transactions on a daily basis and we would be delighted to help you understand the implications for your portfolio.

For further information please get in touch.

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