According to the newly updated EPC (Energy Performance Certificates) and MEES (Minimum Energy Efficiency Standards), any new commercial tenancies with an EPC rating of F or G could be subject to significant penalty charges.
The MEES of commercial properties are something that all landlords, investors, developers, and tenants should be aware of. Non-compliance with the latest requirements could result in penalties of between £10,000 and £150,000 calculated on the rateable value of the property and details of the breach may be made publicly available.
Since 1 April 2018, landlords have been prohibited from granting new commercial tenancies, or extending or renewing an existing tenancy, if the property is sub-standard. The only exception being if the property benefits from an exemption which is registered on the PRS Exemptions Register.
From 1 April 2023, landlords have been prohibited from continuing to let any commercial property that is sub-standard. A commercial property is classified as sub-standard if it has an EPC rating of F or G.
The Government anticipates reviewing the MEES requirements again in the near future, having signalled its intention to increase the minimum energy efficiency standard to band C by 1 April 2027 and band B by 1 April 2030.
Entitled ‘Urgent Upgrade’, the report from Siemens Financial Services (SFS) highlights the serious financial impact of recent legislation which demands that commercial buildings have an EPC rating of at least E to continue to be let.
This equates to £93 billion worth of commercial properties in Great Britain including across industry (£25 bn), offices (£28 bn), and retail (£31 bn). As the research makes clear, without immediate investment owners of F and G rated buildings will be left without income and face the possibility of significant fines as well as reputational damage. This means energy efficiency improvements are now a top priority.
If the premises fall into the following criteria, the owner can be exempt from an EPC upgrade:
- Where a property remains sub-standard despite all relevant energy efficiency improvements having been carried out or none can be made.
- Where a recommended improvement need not be carried out as the cost would be more than the savings on energy bills over a seven-year period.
- Where consent cannot be obtained from the tenant or a third party for the works to be carried out.
- Where a recommended wall installation would have a negative impact on the fabric or structure of the property.
- Where the relevant works would devalue the market value of the property by 5% and this is supported by an independent valuation; and
- A six-month exemption for new landlords in specific circumstances.
Exemptions must be registered on the PRS Exemption Register to avoid enforcement action. It should be noted that exemptions are time-limited and will not last more than five years. They are also personal and cannot pass to successor landlords.
It is imperative that any exemptions are registered, as the publication of any breach of the regulations on the PRS Exemption Register could potentially expose a landlord to the risk of reputational damage.
It is also worth noting that MEES requirements also do not apply to properties occupied under a licence, short leases (less than six months) and long leases (of more than 99 years).
More than half of commercial landlords (55%) plan to invest £100,000 or more in improving the energy efficiency of their properties over the next 12 months.
Research by Handelsbanken Professional Landlords Survey also reveals one in five professional landlords (19%) plan to spend £500,000 or more to meet EPC standards. The survey is based on nationwide research among professional investors with an average of 29 properties worth £14 million.
Property owners, occupiers and lenders are required to understand the evolving regulations and responsibilities. Nolan Redshaw is well positioned to provide expert advice, informed decisions and well-timed property disposals or acquisitions, with consideration for EPC and MEES legislation. Get in touch to discuss how our team at Nolan Redshaw can help you achieve your property goals efficiently and effectively.
NR Insights 