UK Government Announces Changes to Minimum Energy Efficiency Standards for Commercial Property
1. Introduction
The UK Government has finally published its long-anticipated response to two public consultations carried out in 2019 and 2021 on the minimum energy efficiency standards ("MEES") commercial properties must meet if they are to be let. The response is described as interim (and we set out below what remains outstanding), but the key questions of the minimum standard and the date for compliance are answered in this response.
From 2031, all commercial buildings above 1,000 square metres must achieve a minimum standard Energy Performance Certificate ("EPC") rating of B, subject to some exemptions. Commercial property below the 1,000 square metre threshold will be required to possess an EPC rating of E (again, subject to exemptions).
2. Background
The MEES regime is the statutory minimum energy efficiency regime for privately rented property in England and Wales. In practical terms, it uses the property's EPC rating as the trigger and compliance benchmark. EPC ratings range from A to G, with A being the most energy efficient rating. The current position is that a landlord generally may not let, or continue to let, a commercial property with an EPC rating of F or G unless the property is improved to at least EPC rating of E, or a valid exemption is registered.
The Government published consultations in 2019 and again in 2021 with a view to tightening non-domestic MEES. It was originally proposed that commercial properties should achieve an EPC rating of B by 2030, with an interim requirement to achieve C by 2027. Given the passage of time since these proposals, the Government, in its interim response to these consultations, has dropped the interim requirement and extended the time period for achieving a B rating.
Rather than issuing a full response, the Government's interim update confirms its intended direction of travel, and signals the key policy decisions that will be taken forward into secondary legislation.
3. Key Proposals
| Element | Position |
|---|---|
| Target standard | EPC B for all privately rented non-domestic buildings over 1,000 square metres, where cost-effective (see Flexibility Mechanisms below) |
| Compliance deadline | From 2031 |
| Smaller buildings (below 1,000 square metres) | Continue to be subject to the existing minimum standard of EPC E, with no set deadline for going beyond this level |
| Interim EPC C milestone (previously proposed for 2027) | Dropped — will not be taken forward |
| Flexibility mechanisms | Existing seven-year payback test and exemptions will remain in place, ensuring that only practical, affordable, and cost-effective improvements are required |
4. Outstanding Issues
As indicated above, the Government's response is interim. The key issues on which further Government responses are required are:
- Enforcement mechanisms—should the current penalties be increased, and should the regulators have additional powers?
- Should there be a six-month exemption from the MEES for shell and core-let buildings?
- Should tenants be subject to statutory duties under the MEES? Currently, MEES applies to landlords and the parties to a lease are left to allocate costs between them. The Government is considering whether this should be underpinned by some basic responsibilities on tenants not to undermine an EPC rating and a duty of mutual co-operation with the landlord.
5. Legislative Status
The changes to raise MEES to EPC B for larger buildings will only take effect following the successful passage of secondary legislation through Parliament. The Government has stated it aims to introduce legislation and updated guidance at the earliest opportunity, working with stakeholders to finalise the details.
6. Conclusion
Real estate stakeholders will be relieved that finally there is some certainty about the key questions of the EPC standard that needs to be achieved in the medium term, and that the timeline has been marginally extended. Many in the industry have been upgrading their portfolio at great expense without that certainty, but driven by an occupier market which is ahead of the legislation in this respect.
For those landlords who haven't done so already, it will now be essential to begin to assess the current EPC ratings of their portfolios, and to identify properties that may require works to reach an EPC rating of B by 2031. Where such works are likely to be onerous, landlords should now be considering what exemptions could apply and how they can ensure those exemptions will apply to the properties.
In the meantime, for those with properties of less than 1,000 square meters, it will be welcome news that they will not have to upgrade their properties above the current requirement of an EPC rating of E.
