All change with MEES Regulations – How will this affect you?

Chris Harrison, Associate in our Building Consultancy team in Birmingham, discusses EPC Regulations and what tenant and landlords need to know.
January 16, 2023

On 1 April 2023, the next round of EPC Regulations came into force as part of the government’s push to achieve net zero emissions by 2050.

From that date, all rented commercial property will need to have an energy performance certificate (EPC) rating of band ‘E’ or better to be let or sold and failure to achieve this will see landlords face potential fines of up to £150,000.

What does this mean for landlords?

Landlords are required by law to ensure that their properties meet the required EPC rating. Currently, all commercial property must hold an EPC rating of band ‘E’ or better prior to any new leases or renewals being granted.

From 1 April 2023 this will be extended to all rented commercial properties. This will include properties where the leases are mid-term.

What does this mean for tenants?

A tenant can continue to occupy a building that does not have the required EPC rating, but they would not be able to sublet or assign their property until the EPC rating is improved to band ‘E’ or better. The Landlord cannot legally demand rent after 1st April 2023 for buildings with a rating of ‘F’ or ‘G’ until works are carried out to improve the rating and a new qualifying EPC is obtained, subject to some limited exceptions.

Milestones to band ‘B’ by 2030

Looking further ahead landlords also need to be aware of future proposals for the minimum standards to be increased to band ‘C’ by 1 April 2027 and band ‘B’ by 1 April 2030.

Are there any exceptions?

Whilst the new Regulations apply to all rented commercial premises (with the exception of those subject to leases of less than 6 months, or more than 99 years), limited exemptions do apply where undertaking works to improve the rating is either not possible or not economically viable.  Any landlord seeking to rely on an exemption must make sure to apply for, and register, an exemption. Exemptions are valid from 6 months up to five years.

Does this apply to your building?

The new Regulations are estimated to apply to 85% of the non-domestic rented building stock.

Rented buildings account for 61% of the non-domestic stock in England and Wales and they produce 37.5% of all emissions from non-domestic buildings.

Interestingly, commercial, and industrial buildings greater than 1,000 m2 make up only 7% of all non-domestic buildings but they are responsible for over half of the total energy used and carbon emitted.

It is important to recognise at this point that an EPC focusses on the quality of the fabric and services of a building and does not measure operational energy use.

Interestingly, commercial, and industrial buildings greater than 1,000 m2 make up only 7% of all non-domestic buildings but they are responsible for over half of the total energy used and carbon emitted.

Chris Harrison, Associate, Vail Williams.

How are the EPC assessments made?

EPC assessments are available at different levels. Commercial properties typically require a level 4 assessment, but this is dependent on the complexity of the building engineering services installed, specifically the heating, ventilation, and air conditioning (HVAC) system.

The right level of assessment is essential to obtain an accurate energy rating for your property.

Prior to an EPC Assessment we recommend that owners and occupiers have details readily available of the types of engineering services, windows and insulation installed, which is usually held in the operations and maintenance (O&M) manuals for the building.

However, for older buildings this may not be the case and reasonable assumptions will need to be made by your assessor following their inspection.

What happens after the assessment?

Once the assessment is complete the recommendation report is a good place to start in establishing what additional measures or works are required to improve the energy rating of your building.

Completing this exercise in advance of needing a new EPC for your property will allow you the time to plan and budget for the works required to ensure your building remains lettable at the next relevant lease event.

These works can then be incorporated into the planned preventative maintenance (PPM) schedule for your building.

A PPM schedule is a useful management tool to programme and budget for works to your property, including cyclical maintenance and more significant works, such as improvement works to reach the desired EPC rating. It is designed as a working document and for multi-let buildings it can be used to assist with preparing the service charge budget.

Who pays for the works?

Building owners and occupiers need to look carefully at their leases to determine the party responsible for the building fabric and services, and therefore who should implement and pay for the improvement works.

Our building consultancy team can provide the technical and property advice necessary to support you as you prepare for the EPC Regulations coming into force on 1 April 2023.

From pre-acquisition advice and the preparation of PPM schedules, to supporting you to implement improvement works, as well as advising on your dilapidations’ liability, we can help. Get in touch for more information.