Consultation on tightening Minimum Energy Efficiency Standard for commercial buildings

The government is consulting on a proposed future trajectory for the Minimum Energy Efficiency Standard (MEES) for commercial buildings. Its favoured approach is raising the minimum EPC rating to B by 2030.

When proposals for MEES were first put forward in 2014, the minimum EPC rating that would permit a landlord to let a commercial property was set at E. However, it was clear that this rating would be reviewed in the future. The current consultation – which comes less than two years after MEES first took effect in April 2018 – sets out proposals for tightening the minimum standard by 2030. This is part of the UK’s commitment to bring all greenhouse gas emissions to net zero by 2050, a legally binding policy set in legislation earlier this year.

The consultation suggests two different options.

• Raise the minimum EPC rating from E to B by 2030. This is the government’s preferred option. Its modelling suggests that this would bring 85% of buildings into scope and would require an investment cost of approximately £5 billion between now and 2030. The average payback time on that investment would be four to five years.
• Raise the minimum EPC rating from E to C by 2030. This would bring only 42% of buildings into scope and would require a reduced investment cost of £1.5 billion. The average payback time on that investment would be three years.

Whichever option is adopted, it is proposed that the existing exemptions would continue to apply. The most important of these is that landlords are only required to carry out works that are cost-effective, meaning that the measure achieves a payback of seven years or less. This test is met if the expected value of savings on energy bills over a seven-year period is equal to or greater than the cost of the measure. If this test is not met, landlords are able to register an exemption that is valid for five years.

The consultation also asks whether it is helpful simply to set a single implement date of 2030, by which time landlords need to meet a rating of B (or C), or whether there should be incremental milestones that landlords are required to meet (perhaps D by 2024, C by 2027 and B by 2030, for example). The consultation points out that if the requirement is merely to ensure that the rating is B by 2030, there will be a lower reduction in carbon emissions between now and 2030 than if there were intermediate steps. There would also be a risk of capacity issues as the 2030 deadline approaches. The consultation document asks whether there would be any way of setting a single date in 2030 by which the B (or C) rating must be met, but incentivising landlords to carry out works earlier than legally necessary.

Other issues

In addition to the two key questions above, the consultation document raises some interesting issues about the current structure, including:

• What can be improved in the current regulations?
• Would the existing exemptions still be effective under a tightened trajectory?
• How could the regulations be changed to overcome the current anomaly that a landlord is unable to grant a lease of a building where it has been agreed that the tenant will carry out its own fitting out works?
• How can enforcement be improved to support a tightened trajectory?

Two forthcoming consultations

The government has also announced as part of its response to the Committee on Climate Change’s 2019 Progress Report to Parliament that it will consult next year on introducing “mandatory in-use energy performance ratings for non-domestic buildings in the private sector”. These will help businesses understand and improve the actual energy performance of their buildings. This change may well be achieved by an extension of the requirement for Display Energy Certificates. These are currently mandatory only for buildings with a floor area in excess of 250 m² that are occupied by a public authority and visited frequently by members of the public. They are, however, frequently displayed – on a voluntary basis – in privately occupied buildings as well.

In addition, there is to be a consultation on increasing the required minimum standard for residential property during winter 2019/20.

Commentary

The energy efficiency of their buildings is one of the key issues facing investors today, and it is important that as many investors as possible respond to this consultation. While the government’s favoured approach is a trajectory to a B rating by 2030, it appears that no firm decision has yet been made.

It is curious that the government has raised the question of the future trajectory at such an early stage in the implementation of MEES. The aim is to provide landlords with a lengthy lead-in time, which will certainly be helpful. The MEES regulations contain a requirement for a review within five years of their introduction in 2015, but the Government has chosen to issue this consultation before the required review has taken place – indeed before anyone can say whether the existing structure is working, or even workable.

So far as we are aware, there have been no enforcement proceedings at all. This seems to be confirmed by a comment in the consultation paper that the government is currently running a pilot project with seven authorities to determine how the regulations can be most effectively enforced. One might think that it is rather late in the day to start thinking about enforcement 18 months after the regulations came into force.

Further information

The consultation paper is available here:

Non-domestic Private Rented Sector minimum energy efficiency standards: future trajectory to 2030

The last date for responding is Tuesday 7 January 2020.