The government has launched a consultation on the proposed framework to implement tighter minimum energy efficiency standards (MEES) for privately rented non-domestic buildings in England and Wales to reach a long-term target of having an Energy Performance Certificate (EPC) rating of B by 2030. Such measures are being put in place to provide the government with a greater chance of achieving its ambitions of at least a 20% reduction in business energy use by 2030 and net zero carbon emissions in the UK by 2050. The consultation closes on 9 June 2021.

Current rules

Under the current MEES regulations landlords are, subject to certain exemptions, prohibited from granting new leases (including renewals and extensions) of non-domestic privately rented property with an EPC rating below E. There are stringent financial penalties for landlords that do not comply. From 1 April 2023, the ban will extend to prohibit the continuation of any existing lease of non-domestic premises in England and Wales with an EPC rating below E.

Proposed implementation

As part of the consultation, the government has proposed an incremental milestone approach providing landlords with two compliance windows. Under the proposals subject to some exceptions, landlords will need to present a valid EPC by 1 April 2025 and then will have until 1 April 2027 to improve the building to at least an EPC rating of C. Landlords will then need to repeat the process by providing a valid EPC by 1 April 2028 and subsequently ensure that by 1 April 2030 the building has improved to at least an EPC rating of B. If these levels cannot be met by the relevant milestones, the landlord must register a valid exemption. Failure to comply may lead to fines and penalties.

Commentary

We recommend that landlords prepare now by reviewing their property portfolios and identifying any properties which may be at risk. With environmental, social and governance (ESG) considerations rapidly moving up the agenda for businesses, investing in energy efficiency works will not only result in energy cost savings and ultimately compliance with the MEES regulations, but also enhance ESG credentials and performance for businesses. As the government lockdown rules are slowly being loosened with occupiers potentially seeking new space, good environmental performance of buildings may assist landlords in securing profitable tenants, most of whom now have their own ESG agenda to fulfil and investors to satisfy.