The Minimum Energy Efficiency Standard for Commercial Buildings – Will this affect you?

The European Union had recognised that emissions from buildings accounted for a significant portion of total greenhouse gas emissions. To help mitigate the risks of adverse impacts of emissions, the EU has introduced the requirement for buildings to have an Energy Performance Certificate (EPC) with recommendations to improve energy efficiency whenever it is sold, built or leased. While EPCs facilitate the transfer of clear information on a building’s environmental impact and makes the investment for energy efficiency more attractive, there is no statutory requirement to carry out any of the recommended energy efficiency measures stated. However, with the recent introduction of commercial Minimum Energy Efficiency Standard (MEES), property owners may find it necessary to invest in the improvement of energy performance.

New regulations for non-domestic private rented sector known as MEES has now been confirmed and passed into law.  The MEES will come into effect on 1st April 2018 for new leases and lease renewal/extensions where there is an EPC already. All existing leases will be caught by the minimum standard by 1 April 2023.  MEES will make it unlawful for properties with an F or G EPC rating to be let, without  implementing cost-effective energy efficiency improvement or meeting an exemption criteria (landlord has been denied consent to install improvement measures). Two possible solutions would be available to landlords if they wish to lease properties with an F or G rating:

  • Carry out measures to improve an EPC rating
  • Landlords can show that, under a Green Deal finance arrangement, the annual repayments for the installation of energy improvement measures would exceed the annual bill savings estimate

It is expected that a large number of property owners will be affected by the MEES

The government estimates that properties with ratings F and G make up 18% of all commercial buildings. Carbon Credentials has undertaken analysis of EPC ratings of a property investment company who owns a large number of assets with leased spaces across the UK. While the majority of their assets will be unaffected by the standard, a sizable amount of buildings would need immediate attention to avoid adverse risk to business.  Furthermore the percentage of targeted buildings of the MEES may increase over time as buildings need EPC renewals.

MEES

Figure 1: EPC ratings (colour) of commercial building a property investment company against performance benchmarks of typical buildings.

Since the introduction of commercial EPCs in October 2008, performance standards have increased. Consequently, it has been increasingly more challenging to achieve a good rating. This implies that when properties need to renew their EPC, unless efforts for energy performance improvement have been made, the new rating will likely be inferior to their previous one. As EPCs are valid for 10 years, a number of properties will need renewals soon after the 1st of April 2018 and will likely face this scenario.

How could this affect you?

The regulations could impose enormous risk for owners. Some of the risks include:

  1. Extension of void periods
  2. Value of property
  3. Rental value
  4. Increased cost through capital expenditure

What can you do to help prevent/mitigate these risks?

Understanding the severity and likelihood of the risks affecting you is the fundamental first step to approach the MEES. This can be achieved through a comprehensive risk assessment to understand value at risk allowing the preparation of an effective strategy. Please get in touch if you would like any more information about the MEES.

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