With new minimum energy efficiency standards (MEES) for non-domestic private rented properties due to come into force next year, landlords should already be taking steps to meet the necessary energy performance indicator. Below we look at what these changes mean for commercial landlords, as well as the proposals for commercial MEES beyond 2023.

What is the minimum level of energy efficiency required?

With the phased introduction of the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015, subject to prescribed exemptions, private landlords of non-domestic properties in England or Wales have not been permitted to enter into new lettings with an EPC rating of less than ‘E’ — including lease renewals and lease extensions — since 1 April 2018.

As from 1 April 2023, this requirement will apply to all private rented properties in England and Wales, even where there’s been no change in tenancy arrangements. This means that the MEES threshold will apply to existing commercial leases, where landlords will not be able to continue to let properties with either an ‘F' or ‘G’ EPC rating, albeit subject to any exemption.

What steps should commercial landlords be taking to meet this standard?

Given that the clock is now ticking until the new MEES for existing commercial lettings comes into force, landlords should be assessing the EPC ratings of any rental properties within their portfolio to see if they fall below the required threshold.  Where necessary, they should also be putting in place a pro-active strategy to make adequate energy efficiency improvements to any properties with a current ‘F’ or ‘G’ EPC rating.

This could mean, for example, replacing windows and doors, or installing more energy efficient heating and water systems. It will also mean liaising with existing tenants to enable works to take place, ideally during closing hours to minimise any business interruption.

As it’s the landlord’s obligation to ensure that the EPC meets the minimum rating, this responsibility cannot be passed to the tenant. Further, some or all of the cost of any energy efficiency improvements can only be passed to the tenant via any service charge, if the terms of the lease allow for this.

What are the consequences of non-compliance with the new EPC rating?

Once the regulations have fully come into force, it will be illegal for a landlord to let out a non-domestic private-rented property which falls below a minimum 'E' EPC rating —unless, for example, all the relevant energy efficiency improvements for the property that can be made have been made, and the property remains sub-standard, or one of the other prescribed exemptions apply. Further, even where a legitimate exemption applies, this must be validly registered on the PRS Exemptions Register before this can be relied upon.

In short, in the majority of cases, landlords will be unable to lease any building that has an EPC rating lower than E, where non-compliance could result in enforcement action and a sizeable fine, potentially running into tens of thousands of pounds.

What further changes are likely to take place when it comes to energy efficiency?

In addition to the changes due to take place next year, further changes to MEES for commercial properties are expected across the UK. The 2023 changes are effectively a precursor to reaching the government’s new set target for all commercial rented properties to have a minimum EPC rating of 'B' by 2030. This is also likely to be implemented in two stages, with a phased incremental increase to a C-rating by 2028.

As such, although it may be tempting for landlords to target the bare minimum EPC ‘E’ rating due to come into force in 2023 for existing commercial lets, by aiming higher, landlords will be future-proofing their properties from more stringent standards soon likely to take place.

Legal disclaimer

The matters contained herein are intended to be for general information purposes only. This blog does not constitute legal advice, nor is it a complete or authoritative statement of the law in England and Wales and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its’ accuracy, and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should always be sought.