In this article we will examine the modifications to the Minimum Energy Efficiency Standards (MEES) laws and their effect on landlords.
The upcoming Minimum Energy Efficiency Standards (MEES) legislation will turn energy-efficient buildings from a “nice to have” to a legal requirement, which will have a significant impact on commercial real estate landlords.
About 12% of the UK’s emissions are caused by the energy we use to heat and power non-domestic buildings. In 2050, over 60% of non-domestic buildings from now will still be standing, accounting for 40% to 45% of all floor space.
Band E is the minimum standard that is required on new lets under the existing regulations. It is unlawful to rent out a business location that is subpar. The big change from April 2023 is that this legislation will be extended to existing lettings that do not receive an E rating, making it unlawful to continue to let a property which fails this standard.
Commercial building performance standards have been addressed for some time, but these new recommendations aim to improve the performance of current real assets.
What is an EPC Rating for Commercial Buildings?
An Energy Performance Certificate (EPC) is a certificate (and related report) that details a property’s energy efficiency rating and offers suggestions on how it could be made more efficient.
Since 2008, almost all household and non-domestic buildings that are sold, rented out, or built must have an EPC. A property may also need an EPC if certain changes are made to it.
How is an EPC Rating for a Commercial Building Calculated?
An EPC rating is determined by a number of elements, including the interior illumination and the materials used in construction.
To determine the building’s energy efficiency rating, a certified Non-Domestic Energy Assessor (NDEA) will look at the building’s size, cavity wall and attic insulation, and HVAC system.
The grades for EPC Certificates range from A to G. The most effective outcome you can get is an A, and the worst is a G. (least efficient).
An A score ranges from 0 to 25. The performance of a building with zero net annual CO2 emissions is known as a zero-rating.
What About Listed Commercial Buildings?
Regarding listed buildings and whether they are excluded from the requirement to acquire an EPC, there is a common misunderstanding.
It is up to the owner of a listed building to determine whether or not their property is obliged to have an EPC. Listed houses and structures located in conservation areas will not always be excluded from the requirement to have a valid EPC.
When a listed building or property is sold or rented, an EPC is not currently necessary unless meeting minimal energy performance standards will significantly alter the building’s character or look.
Examples of energy efficiency improvements that might change a building’s appearance or character—or at the very least, that are likely to need local authority planning permission to be installed on a listed building—include external solid wall insulation, replacement glazing, solar panels, or an external wall-mounted air source heat pump. An EPC may be legally needed in cases when adherence to energy performance standards would not cause a change in character or appearance.
Exemptions can be registered for listed buildings, but an EPC must still be prepared to establish whether energy performance improvements can be made without negatively impacting the structure’s historic character or aesthetic appeal.
What about future requirements?
The government is considering measures that would need a minimum threshold of band B by 2030 in order to achieve its goal of becoming carbon neutral. It is suggested that a staged strategy be used:
• April 2025 – landlords must submit a valid EPC and there is then a 2-year window for compliance
• April 2027 – unless the EPC is band C or above, landlords must obtain another EPC to show that the building has been improved to a band C or have achieved the best available taking a reasonable view as to cost.
Currently, an EPC is required at the time of a letting. The EPC is good for 10 years after which it expires, and a new EPC is not required until the building is re-let. Another significant change in the proposed ideas is the need that a building always have a current EPC.
Landlords will incur costs in order to improve properties in order to reach a band B, however these costs may be offset by increased rental income and potential capital gains.
When a lease is being renewed and the tenant won’t be moving out, the landlord may try to shift some of the load on the renter in order to free up more time for repairs. Given that the tenant would ultimately profit from decreased building operating costs, landlord and tenant may need to work together more.
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