In brief
The UK government has confirmed that Minimum Energy Efficiency Standards will target an Energy Performance Certificate (EPC) rating of B by 2031 for leased commercial properties larger than 1,000 m² in England and Wales. Commercial buildings below this threshold will remain at the current minimum standard of EPC E. The announcement gives landlords clarity as to the level and timing of necessary upgrade works to meet the 2031 deadline.
In more detail
Current MEES requirements
Minimum Energy Efficiency Standards (MEES) apply to most lettings of commercial property in England and Wales where an EPC is required. Since 1 April 2023, landlords have generally been prohibited from continuing to let properties with an EPC rating below E unless a valid exemption applies. The regime applies not only to new lettings but also to existing leases.
The regulations contain a number of important exemptions, including:
- Where all relevant energy efficiency improvements have been carried out;
- Where improvements fail the seven-year payback test;
- Where necessary third-party consent cannot be obtained;
- Where works would reduce the property's value by more than 5%; and
- Certain temporary exemptions for new landlords.
Responsibility for compliance primarily rests with landlords, although tenants may also need to consider MEES where they are underletting premises. Non-compliance can result in substantial financial penalties and the publication of breaches on the Private Rented Sector (PRS) Exemptions Register.
Government's revised MEES proposals
For a number of years, Government policy envisaged raising the minimum standard to EPC C by 2027 and EPC B by 2030 for all rented commercial buildings. Those proposals have now been significantly revised.
The Government has now confirmed a more targeted approach to strengthening MEES in the non-domestic sector. The key proposals are:
- From 2031, private rented commercial buildings with a floor area of more than 1,000 square metres will be required to achieve an EPC B rating, where it is cost-effective to do so.
- Buildings of 1,000 square metres or less will continue to be subject to the existing EPC E minimum standard.
- The previously proposed EPC C milestone for 2027 has been dropped.
- Existing flexibility mechanisms, including the seven-year payback test and current exemptions, will remain in place so that only practical, affordable and cost-effective improvements are required.
These changes will require secondary legislation and are not yet in force.
Practical implications
The Government's revised approach provides greater flexibility than previously anticipated, particularly for owners of smaller commercial properties. However, investors acquiring or managing larger assets should not view the 2031 deadline as distant. Achieving EPC B may require significant capital expenditure on building services, lighting, insulation, heating and cooling systems, and the planning of such works can take several years.
Key areas to focus on will include:
- Review of commercial property portfolios to identify assets above 1,000 sq. m that are unlikely to achieve EPC B;
- Assessment of whether current EPCs remain accurate and up to date;
- Consideration and planning of refurbishment programmes; and
- Review of leases to determine allocation of improvement costs and tenant cooperation requirements.
In summary
The immediate MEES obligation remains compliance with the existing EPC E standard. However, the future direction of travel is now much clearer: rather than applying EPC B to all rented commercial premises, the Government intends to focus the enhanced standard on larger commercial buildings (over 1,000 sq. m) from 2031, while retaining existing exemptions and abandoning the proposed EPC C deadline in 2027.
Our Baker McKenzie lawyers are able to provide expert advice in this area. Please get in touch with us if we can be of assistance to you.