MEES Update: Offices Missing the Mark

Landlords and tenants of commercial property will be familiar with the “MEES Regulations” – more formally known as the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015.

The MEES Regulations prohibit private landlords from granting new tenancies (and, since April 2023, from continuing to let existing tenancies) of commercial properties which have “sub-standard” energy performance ratings i.e. a rating of ‘F’ or lower on a property’s Energy Performance Certificate “EPC”. So, a commercial property must have an EPC rating of at least an ‘E’ or else it cannot lawfully be let, or continue to be let (unless a valid exemption is registered). Non-compliance could potentially result in landlords being fined.

But that’s not all; tighter standards are set to come into play in the next few years, though there is still a lack of clarity from the government around the timelines and the details which continues to cause uncertainty and is contributing to delaying the property sector transitioning to net zero. The expected milestones are:

• By April 2025, all commercial properties (that are not exempt) must have a valid EPC;
• By April 2027, the government intends to raise the minimum EPC rating from an ‘E’ to a ‘C’;
• By April 2030, the government intends to raise the minimum EPC rating even higher, to a ‘B’.

That is a significant leap – with only a short time to bring sub-standard properties up to standard.

This is a particular concern for office stock, its owners and its occupiers. A recent report from Carter Jonas evaluated office premises in 12 major UK cities including London, Edinburgh and Cardiff and found that just over 31% of the office space assessed currently has an EPC rating of ‘C’ or higher and a mere 8.5% achieves a ‘B’ rating.

Looking ahead to the proposed minimum standard envisaged to come into effect by April 2030, the figures suggest that in less than 7 years it could be unlawful to let over 90% of UK office space. This is largely a result of the ageing state of UK office premises, with Carter Jonas reporting that, “Around 55% of existing UK office inventory by floorspace is more than 30 years old and at risk of functional obsolescence”. You can read the report in full here.

Office landlords will no doubt be considering whether improvements need to be made to their property’s energy performance rating in the coming years, to ensure that their existing leases can continue lawfully. The question that follows is to what extent office landlords look to shift the requirement to improve the environmental performance of their premises onto their occupiers – and how they could do it.

Office occupiers should consider the terms of their leases carefully. Environmental and sustainability provisions are now essentially a market norm. Occupiers could be subject to obligations that range from prohibitions on doing work that reduce a property’s EPC rating, to obligations to attain a specified EPC rating when doing works.

Whilst occupiers are likely to want premises that are run in a sustainable way with the benefits of potentially cheaper running costs and a more attractive workspace for employees, they are unlikely to want to bear the cost of improving a property’s energy efficiency rating to help the landlord adhere to these upcoming changes to the MEES Regulations – particularly if those changes could be rentalised.

Clearly there is work to be done to improve the standard of the UK’s office stock, with time running out before the regulatory bar is intended to be raised, and this will need to be managed carefully between office occupiers and landlords.