The UK Government is planning to make significant legislative changes to accelerate the move from a current average commercial Energy Performance Certificate (EPC) rating of a ‘D’, to a minimum ‘B’ rating within the decade, and generally improve the energy efficiency of the UK’s building stock. In England and Wales all commercial buildings will likely need to achieve an EPC ‘C’ rating by 2027 and an EPC ‘B’ rating by 2030 to be lettable.
The Minimum Energy Efficiency Standards (MEES) provide legislation and timescales of how leased buildings need to improve their energy efficiency in the coming years, via their EPCs. In order to optimise a building’s efficiency there are severe consequences for a landlord who fails to genuinely try to climb the EPC ladder. Properties that fail to meet the MEES Standards can no longer be leased unless they can gain an exemption and could become ‘stranded assets’.
A substantial proportion of real estate needs to improve its EPC grade before the end of the decade, something that will challenge the commercial property market and regulators alike in the coming years and will require huge investment.
Upgrading your assets
Achieving BREEAM ’Excellent’, increasing the energy performance of a building, targeting net zero credentials or completing the reset air quality assessment all play a role in creating a sustainable building.
It’s too simplistic to say that if you ditch the gas boiler and get an electric heat pump, you’ll automatically get a better EPC rating. Buildings are inherently complex and have a wide range of uses so it is imperative to consider them on an asset by asset basis.
There are various issues with certification even before implementing improvement with exemptions available on devaluation, payback and practicability grounds. For instance, the proposal for commercially rented buildings to be EPC ‘B’ by 2030, determines that upgrades should be ‘cost effective’. This appears to be a significant caveat, as financial viability is a major sticking point, and the cost of improved efficiencies will often not be paid back in fuel savings even over the long term. Additionally, commercial buildings that are owned, not leased, are not covered by current EPC policy proposals, so who will be responsible to get these to grade if there isn’t any legislation to guide the process?
The UK Government is aiming to move away from the use of EPCs as we know them today to benchmark energy performance, as their results often do not correlate with actual energy usage in practice. The preferred metric for commercial buildings will make use of metered energy data instead to give us a more accurate picture about how much energy a building is actually consuming, opposed to what it was designed to consume.
Understanding the impact of your asset
Legislation across the energy, EPC and carbon realms will only tighten in the coming years, with landlords and tenants needing to work together collaboratively to improve building stock. Therefore, it is vital for owners and occupiers alike to understand the energy and carbon impact of their real estate and make enhancements on their own terms before they are mandated, or assets become obsolete. Immediate actions for landlords to take in the short term include:
• Ensuring the asset has an up to date EPC. The EPC calculation methodology changed in June 2022, so it’s worth rechecking asset EPCs to ensure the rating is current.
• Obtain an EPC+ report to set out the steps needed to get to the required standard. This will allow landlords to align fabric and system upgrades required with proposed refurbishment, lease or maintenance events.
• In tandem with planning for EPC upgrades, make use of energy audits to assess actual building performance, benchmarking it against industry best practice.
• Review systems controls to ensure existing systems are operating efficiently.
It will be a significant challenge for the industry to resolve the EPC upgrades across all sectors before 2030, and have the investment to do so. However, being forewarned of potential costs will allow long-term investment decisions to be taken with all facts in hand.