The next challenge for the commercial sector – the EPC time bomb?

22 Nov 22

Under the MEES, from April 2023 landlords will be forbidden from signing new leases with tenants if their building has an EPC rating below ‘E’. This is proposed to increase to a ‘C’ rating by 2027 and a ‘B’ rating by 2030.

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It’s been a tough few years for commercial property owners. Many are still feeling the effects of COVID-19 and the softening demand for office space. The recent economic woes haven’t help either, with commercial yields rising and values taking a hit.

The next challenge facing the market is the Minimum Energy Efficiency Standard (MEES) regulation, due to come into force from April next year. The MEES is part of the Government’s strategy to achieve its target of net-zero carbon emissions by 2050.

Under the MEES, from April 2023 landlords will be forbidden from signing new leases with tenants if their building has an EPC rating below ‘E’. This is proposed to increase to a ‘C’ rating by 2027 and a ‘B’ rating by 2030.

Many are calling this the ‘EPC time bomb’. A recent Sunday Times article cited evidence from the Estates Gazette which found that nearly 24,000 offices in England do not meet the EPC ‘E’ standard, with this number increasing to 63,000 offices (or 400 million sqft of space) that do not meet the EPC ‘B’ standard.

This issue is particularly acute in London. The Estates Gazette estimates that 4,110 commercial properties in London do meet the EPC ‘E’ standard. This is echoed by the Mayor of London who, in his response to the MEES consultation, estimates that 19% of commercial properties fall below the EPC ‘E’ standard and that only 24% of commercial properties in London have an EPC. The Mayor’s data can be viewed via the online London Building Stock Model.

April 2023 is now just around the corner and 2027 and 2030 is fast looming on the horizon.

Most property professionals will be aware of these deadlines, but not all will. This may present opportunities for savvy investors to acquire non-compliant assets at discounted rates, and those who get the timing wrong could face stranded asset risks and costly retrofit costs. Now is certainly the time to be proactive.

In most cases, improving EPC ratings is more than just a lick of paint. Interventions such as installing double glazed windows and energy efficient plant and equipment will require planning permission.

We are working on numerous refurbishment and asset management projects with our clients where sustainability is now front and centre of the brief. This is not only responding to the changing regulatory environment, but also a response to tenant requirements, who want to work in sustainable buildings.

We are also pleased to report that local planning authorities have also been receptive to these applications, aware of the important need to improve the energy efficiency of existing buildings.

Please do get in touch should you wish to discuss the implications of the MEES, the planning process, or to hear more about what we are doing.

Lewis Westhoff Associate,Planning