If, like many businesses, you rent out commercial premises then I recommend you read on as there is a very good chance that your premises will be one of the 85% of non-domestic buildings currently under the spotlight. That is because following its recent consultation, the government has announced that it will soon become unlawful to continue to let a non-domestic property with an EPC rating below B, a move that the government estimates could cost approximately £5bn between now and 2030. This potential change to tighten up the existing Minimum Energy Efficiency Standards (MEES) comes as no surprise in light of the UK’s legally binding commitment to reduce carbon emission to net zero by 2050.
Swiftly increasing the benchmark
The consultation comes just 18 months after MEES made it unlawful to grant a tenancy of non-domestic premises with an EPC rating below E, unless an exemption applies. From April 2023, the minimum E rating will apply to all tenancies, and so it will be unlawful to continue to let non-domestic premises under an existing tenancy where the EPC rating is below E.
The consultation proposes two options:-
- Raise the minimum EPC rating to B by 2030, capturing 85% of buildings at a cost of approximately £5bn; or
- Raise the minimum EPC rating to C by 2030, capturing just 42% of buildings at a cost of £1.5bn.
The first of the above is the government’s preferred option. Either way, there will be a significant number of landlords who will need to carry out works to improve the energy efficiency of their building(s). It is intended that the existing exemptions to MEES will continue to apply provided that the landlord registers the exemption. The most common exemption will likely be that landlords are not required to carry out works unless they are cost-effective. Works are cost effective if the improvement measures would pay for themselves within seven years of the works being carried out.
The consultation considers whether a single implementation date in 2030 should be set, by which time the relevant buildings must meet the required rating, or whether there should be an incremental change to the requirements (it gives the example of rating D by 2024, C by 2026 and B by 2028). The former appears to be less favourable, with landlord’s perhaps delaying compliance until shortly before the deadline with the sudden demand for supplies and labour becoming problematic.
The MEES introduced 18 months ago had limited teeth by setting a low bar for improvements and with a lack of overall enforcement. However, it looks increasingly likely that further improvements will be required by 2024, therefore investors, landlords and occupiers alike should now start considering the ramifications and likely costs for compliance and non-compliance.
The consultation can be read in full here.