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Rarely a day passes without the news featuring the climate crisis in some form. Even as I write, ‘green protestors’ interrupted Labour leader Keir Starmer’s unveiling of his party’s education reforms.
Whether or not you agree with experts’ warnings that time is running out to save the world, the clock is undeniably ticking for thousands of commercial landlords who need to take prompt action to make properties more energy efficient. The alternative could be sitting on property that is unlettable. But it seems energy efficiency is, for many landlords, the elephant in the room.
Commercial properties must have an energy performance certificate (EPC) if, for instance, they are newly constructed or altered in specific ways. Once registered, the EPC expires after 10 years. As of 1 April 2023, new and existing commercial properties must have a minimum EPC rating of at least E. (By 2027, a C rating may be the minimum requirement, and B by 2030 if plans come to fruition).
However, data shows poor levels of energy efficiency across commercial properties despite MEES being in force since October 2016 and expanded since. There is significant room for improvement.
Last December, Savills found that 3 in 4 UK offices fall below the minimum standards likely to be in place by 2030. Separately, figures from BNP Paribas Real Estate suggest more than half (51%) of central London offices will be unlettable by 2027 without further action.
Under the latest provisions of MEES, landlords who are expected to have an EPC certificate are not permitted to:
- grant a new commercial lease where the property’s EPC rating is as low as F or G and improvements have not been made to the property.
- continue to let commercial properties where the EPC rating is F or G, save for properties let for more than 99 years or less than 6 months
It’s important to note first, that there are several triggers for compliance with the regulations; and government is also considering adding to those triggers - so we can expect an increasing number of commercial properties coming into scope.
Second, there are several exemptions under the rules and practitioners need to be familiar with the nuisance. Reliance on an exemption must be ‘valid’; and registration of an exemption lasts for just 5 years (and only the registering landlord can rely on it). For instance, a landlord who is unable to secure consent from a third party to undertake works to improve their property’s efficiency can rely on the so-called consent exemption. But reasonable attempts must have been made to secure such consent to rely on it. If the landlord sells the property within, say, 2 or 3 years – the new owner cannot rely on the registered exemption.
Attempts to get around the requirements could be risky: serious breaches could attract a substantial fine of up to £150,000, as well as the risk of reputational damage (details of a landlord’s breach could be entered onto the PRS Exemptions Register).
It’s clear that commercial properties across the UK are nowhere near as energy efficient as they should or could be. If they are not doing so already, practitioners ought to be raising the issue with clients as a matter of urgency.