Commercial landlords must get ready for new energy efficiency obligations: Nick Cushing

Since the Prime Minister announced in September that he was relaxing energy efficiency obligations for landlords of residential properties, the rest of the property sector has heard little to clarify who needs to do what.

It is true to say that domestic rentals no longer have to achieve a minimum energy performance certificate (EPC) grade by any specific date for the foreseeable future, but many commercial landlords are unaware that no such change has been made to the non-domestic sector.

The Minimum Energy Efficiency Standards (MEES) which use EPCs as the metric, still apply to commercial properties with currently a minimum band E level required.

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However, while still going through the process of being confirmed into law, the anticipated timetable requires a move to a minimum Band C by 2027 and Band B by 2030.

Nick Cushing shares his expert insightNick Cushing shares his expert insight
Nick Cushing shares his expert insight

While it is unclear on what will eventually become law, some improvement to commercial properties will be necessary, and landlords with large holdings, such as pension funds and industrial estate managers, are reviewing their properties now, so they know what strategic investment would be required to achieve MEES standards in the future.

The potential penalties for MEES breaches can reach as much as £150,000 based on rateable property values and while this is to a degree guesswork on what the final rules will be, upgrading a building’s energy performance will make them more appealing to tenants and may impact on rental revenues.

It is estimated that close to 90 per cent of office space currently performs at EPC band C or worse, and around two thirds of all commercial property will need to do some work to comply with these planned minimum standards. Interestingly, commercial and industrial buildings greater than 1,000 m2 make up only seven per cent of all non-domestic buildings but they are responsible for over half of the total energy used and carbon emitted. So don’t expect the government to back-track on obligations to the commercial sector anytime soon, as the UK is still signed up to future climate change targets.

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Yet many landlords across the Yorkshire region are either not aware or they don’t know how to address the problem. Well, the first challenge is to find out where your property stands on the EPC scale.

Once that is established a good energy assessor can simulate changes to the building and its energy-consuming characteristics to show what would influence that rating.

In some cases, there are exemptions to having to meet these EPC bands. For example, if the only viable route to compliance involves investment that would fail to cover its costs within seven years. But you still need to go through the process.

It is an unwelcome requirement for many local commercial property owners, but the clear message here is that knowledge helps you make informed decisions in good time and may result in better returns from your property in the future.

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While our next government may have different approaches to carbon reduction, the EPC-based model is the only method we have currently, so expect these rules to remain in a similar form for the next few years.

Nick Cushing is a partner at Tudor Edward, a Leeds-based Energy Certification and Compliance Specialist.

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