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Robert Cant, GJS Dillon’s Associate Director of Building & Project Consultancy, considers the actions Commercial property owners and landlords must take to comply with Minimum Energy Efficiency Standards:

What is an Energy Performance Certificate?

Each energy efficiency rating is based on the characteristics of the building itself (the fabric) and its services (such as heating, ventilation and lighting). This type of rating is known as an asset rating. The asset rating will reflect the age and condition of the building. An Energy Performance Certificate (EPC) is a document that sets out the assessed energy efficiency and potential CO2 emissions for a property. The property is rated on a scale from A to G with A being the most efficient and G being the least efficient.

EPC Regulations

From April 2023, UK commercial property Landlords will not be able to extend a lease or issue a new one to a tenant if their property has an energy performance certificate (EPC) rating lower than E. Fines for non-compliance with the new MEES rules can be as much as £150,000. And it doesn’t stop there. Commercial properties have to achieve a C rating by 2027 and a B by 2030.So what do commercial property owners need to do in order to meet these targets? 

Portfolio Management and Landlords

The first steps for Landlords would be to review the current EPC rating on their property and specifically the Recommendations Report. This will help to establish priorities for any work that needs to be carried out. 

Under the MEES regulations, it is landlords that are expected to fund and carry out the improvement works. Whether a landlord can recover any of these costs back from the tenant will depend on lease provisions including reinstatement obligations, service charge, statutory compliance and consents.

It is also a good idea to check the lease to ensure that it makes an allowance for improvements to be made. Some of the cost of the work that needs to be carried out can then potentially be passed on to the tenant.

Landlords should be aware that they do not have an automatic right to enter the premises using the justification of carrying out EPC improvement works. Whether a landlord has these rights to access will depend upon the lease, and if there is no such right, then tenants consent will be required. 

Potential Areas of Improvement

When it comes to improving the energy efficiency of a building, there are specific areas that need to be focused on, and usually meet the economic criterion:

Structure

Complete alteration of the building is unrealistic but if there are gaps in the structure of the building these need to be filled. If insulation has already been used, for example in roofs, then this can be replaced with that of better quality material where possible.

Windows and glazing

If double glazing is not already installed then undertake this as a priority. An assessor will enable you to establish where the leaks are around the doors and windows so these can be fixed. 

Services

Heating, ventilation and air conditioning is often the largest consumer of energy in a building. Improvements can be made by ensuring that the temperature and timing controls are operating at optimum levels. Insulating your walls can reduce your EPC rating significantly, making sure no energy is lost.

Lighting

One of the quickest ways to improve your EPC is by switching to energy-efficient lighting. LED is the best option and timer and motion sensors can help to cut down usage.

Available Exemptions

• The seven-year payback test. This applies if the improvement works necessitated by MEES are not paid for within seven years by the energy savings from the works.
• Third-party consent. Depending on the circumstances, certain energy efficiency improvements may legally require the consent of a third-party before they can be installed at the premises. For example, the improvements could include external wall insulation or solar panels, which require local authority planning consent or, perhaps, the consent of a mortgagee of the premises. Where the landlord has used reasonable efforts but has been unable to obtain required consents, this exemption applies.
• Devaluation. This applies when the landlord has obtained a report from a surveyor that advises that the installation of energy-efficiency measures would result in reducing the market value of the premises (or the building that the premises forms part of) by 5%.

The exemptions generally last for five years, after which the landlord must try again to improve the EPC of the premises in accordance with MEES. If this is still not possible, then a further exemption may be registered. 

For further Information:

These are just some of the actions that commercial landlords and owners can take to reduce their EPC rating. For further information contact Robert Cant, GJS Dillon’s Associate Director of Building & Project Consultancy on 01905 676169 or robertcant@gjsdillon.co.uk

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