By Elena Nicolaou, Head of Commercial Property
The drive to be ‘greener’
In line with international agreements, the UK government is striving to achieve a reduction of 78% in greenhouse gases by 2035 and net-zero emissions by 2050. As part of the government’s plan the rules on Energy Performance Certificates (EPCs) and Minimum Energy Efficiency Standards (MEES) in relation to commercial property are incrementally changing until 2030.
What is an EPC?
Energy Performance Certificates (EPCs) rate the energy efficiency of commercial and residential buildings in the United Kingdom.
How can Palmers help?
The rules relating to Energy Performance Certificates and the minimum standards are complicated and fast-changing.
The result of non-compliance, or failure to register a valid exemption, can be hefty fines and reputational damage to your business. If you wish to discuss this topic further or require advice in connection with your commercial property, please contact our Commercial Property Team.
The current rules
A commercial property with an EPC rating of F or G is said to be ‘sub-standard’. The current acceptable minimum energy efficiency rating is E (unless a valid exemption has been registered).
It is a legal requirement that a valid EPC Certificate must be available for all commercial properties that are sold or leased (including both new and existing leases) in the United Kingdom. There are also requirements for when your EPC must be visible on the premises.
If your property does not have a valid EPC, or you require your energy rating to be re-assessed, you should consult a Commercial Energy Assessor. The UK government website has a function that allows you to search for assessors local to you by inputting your postcode, which can be accessed here.
There is a publicly available government register of EPC Certificates (for both domestic and non-domestic properties) where you can search by postcode and download a free copy of any EPC which exists for a property, along with the recommendation report.
Future changes
The requirements will be changing further over the next couple of years. You should consider what steps you can take now to ensure you are ready for future changes in the MEES. The current guidance from the UK Government has set out the following staged increases:
- 2027 – Minimum ‘C’ Rating – By 2027, all commercial properties must have improved the building to an EPC rating of a ‘C’ or above, or have registered a valid exemption.
- 2030 – Minimum ‘B’ Rating – By 2030, all commercial properties must have improved the building to an EPC rating of a ‘B’ or above, or have registered a valid exemption.
Exemptions
There are various exemptions to the MEES, which are:
- Devaluation – where the necessary improvements would damage the property or devalue it by 5% or more you can register a devaluation exemption. You would need to obtain a report from a RICS assessor to rely upon this exemption and any recommendations not covered by the report must still be carried out.
- Seven-year payback – if the landlord can demonstrate that the initial costs of improvements would exceed the energy savings it would generate over the next seven years then this would not be considered a relevant energy efficient improvement.
- Consent – where the landlord cannot obtain the necessary consents to carry out the required improvements (such as from a superior landlord or the local planning authority).
- Improvements already carried out – if the landlord can show that they have carried out all cost-effective improvements to the property (or where there are none to be made) but the property still has a sub-standard EPC rating an ‘all-improvements’ exemption can be registered.
It is important to note that, if you intend to rely upon an exemption, for it to be valid it must be registered on the government register of exemptions. The registered exemption will need to be evidenced if you plan to sell or lease your property. Exemptions must be renewed every five years otherwise they will expire and the MEES will apply in the normal way.
If you are purchasing an exempt property, you should note exemptions are personal and do not pass upon sale. Any relevant exemption would need to be registered under the purchaser’s name.
Non-compliance
The main penalty for failing to comply with MEES is a fine. This fine is calculated by reference to the rateable value of the property and the length of the breach, subject to a maximum of £150,000 (per breach) under current rules. This may change in the future.
The UK Government can also publish the property owner’s details on a public register setting out specific details of the breach. Considering the general commercial drive to improve corporate social responsibility, this is likely to cause significant reputational damage to any business.
Non-compliance with MEES is not a criminal offence.
For further information and advice on commercial property EPC and MEES requirements, contact a member of our team today.