Four Things FMs Need to Know About Minimum Energy Efficiency Standards

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21 April 2021

What do the Minimum Energy Efficiency Standards mean for commercial property landlords and tenants in the context of a growing drive to improve the energy efficiency of the UK’s ageing building stock?

Shane Betts, Head of Corporate Accounts, Integral UK (a JLL Company), looks at what the new rules mean for commercial properties and what the risks are for landlords that fall foul of the regulatory changes

Betts joined JLL in 2014 and spent five years as Regional Operations Director EMEA on their largest Global Integrated Facilities Management Account within the financial services sector. Having been responsible for service delivery across Europe and the Middle East, he has a record of achievement in operations and business improvement. In 2019, Betts joined Integral as Head of Corporate Accounts and now manages corporate business relationships with scaling and enterprise-level commercial clients, helping deliver innovative engineering solutions that enhance asset lifecycle management, support the journey to net-zero carbon and improve occupier experience.

Picture: a photograph of Shane Betts

Two Years Until New MEES Regulations Come Into Effect

Since the UK Government pledged to reach net-zero carbon emissions by 2050, improving the energy efficiency of the country’s ageing building stock has become a top priority.

Under the Minimum Energy Efficiency Standards (MEES), first introduced in 2018, it’s unlawful for landlords to grant new leases or renewals of existing ones on commercial properties with an Energy Performance Certificate (EPC) below E. An EPC determines a property’s energy efficiency and carbon emissions, providing certificates from A, the highest possible grade, to G, the lowest. At the beginning of the process, the government estimated that nearly one in five commercial properties could not achieve a rating above F.

The requirements are about to get even stricter. By April 2023, MEES will apply to all privately rented property, making it an offence to continue to let a commercial space with an F or G EPC rating even in the middle of a lease term.

So, with just two years to go until the new MEES regulations come into effect, here’s what commercial property landlords and tenants need to think about.

Exemptions to Commercial Properties – How Much Does it Affect You?

The first thing to do is find out how it impacts you. The new rules apply to most commercial properties, but there are some exemptions. For example, the regulation does not apply to commercial leases running for less than six months or more than 99 years. There are also exemptions for specific properties, including some but not all listed buildings. It’s down to you as the landlord of a listed building or as a tenant subleasing the property to determine whether you are liable.

An EPC rating is valid for 10 years. If a commercial property scores F or G but the lease was signed before 2018, MEES will not apply to certificates that expire before the 1 April 2023 deadline.

Beware of the Risks

The penalty for non-compliance is based on the property’s rateable value and carries a maximum charge of £150,000. Landlords that fall foul of the regulatory change also risk losing rental income, either through failure to achieve an EPC rating of E or above or downtime while building upgrades occur. Additionally, there may be consequences for the property’s overall marketability and it could lead to reduced bargaining power when the time comes for rent reviews.

Make the Right Energy Efficiency Improvements

There are numerous ways to improve the energy efficiency of a commercial property, including:

• Insulation – A typical driver of inefficiency is the building fabric. Poorly insulated roofs and walls can have a massive impact on the EPC rating. Landlords should consider adding insulation to solid brick or metal-clad properties, especially where there are cavity walls.
• Heating and cooling – Old HVAC plant and equipment is a significant factor in energy emissions. Effective solutions include the installation of more efficient boilers, variable-speed heating and cooling pumps and high-efficiency chillers. In addition to this, it is a good idea to install a heating control system that reduces the likelihood of wasting energy in different parts of the property.
• Lighting – Many commercial properties with a low EPC rating will have inefficient lighting systems. Simple steps like replacing older fluorescent tubes and halogen bulbs with LEDs or more modern fluorescent lighting can produce substantial savings. As with heating, lighting controls can also dramatically reduce energy wastage in unused areas of the property.
• Predictive maintenance – Investing in predictive maintenance is crucial. After installing sensors on the assets, equipment and distribution networks in a commercial property, engineering teams can track energy efficiency and calculate when systems may begin to underperform. In turn, these insights will give landlords the data-rich evidence they need to invest in more energy-efficient systems or renewable energy sources.

Aim For a Higher EPC Rating

It may be tempting for landlords to target an E rating, the bare minimum, but this may be short-sighted. The net-zero agenda is growing, and the climate crisis is getting worse. There are suggestions that MEES will need to reset the minimum target to an EPC C or B rating by 2030 if the UK wants to meet its 2050 target, but the industry is already lobbying for this to come sooner.

Landlords that aim higher will be future-proofing their buildings from more stringent standards, making them a more attractive proposition for tenants and providing a better overall occupant experience.

Picture: a photograph of a tall building

Article written by Shane Betts | Published 21 April 2021

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