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31 May 2017

Eco proofing your property and energy performance - the future of green buildings

The buildings in our cities contribute significantly to greenhouse gas emissions and impact upon the government’s ability to meet carbon reduction targets. From April 2018, those renting commercial buildings will have to comply with new energy efficiency standards intended to tackle the oldest and least efficient buildings and changes will be required to avoid fines.

What is the issue

It is estimated that almost 20% of commercial properties in the UK hold the lowest Energy Performance Certificate ratings of F or G. Minimum energy efficiency standards (MEES) originally came into effect in March 2015.

From 1 April 2018, landlords must not renew existing tenancies or grant new tenancies if the building has an EPC rating of less than E. After 1 April 2023, landlords must not continue to let any buildings which have an EPC rating of less than E.

The situation is complex and governed by two sets of regulations – the Energy Performance of Buildings (England and Wales) 2012 and the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015. Penalties of between £5,000 and £150,000 may be incurred, so landlords should consider their properties carefully.

Are there any exceptions or exemptions

The above standards will not apply to tenancies of over 99 years or of less than 6 months (with no right of renewal) and buildings which are not required to have an EPC, such as industrial sites, certain listed buildings or temporary properties.

Landlords can be exempt from the MEES Regulations if a surveyor confirms that all relevant energy efficiency improvements (such as double glazing) have been made to the property or the cost of improvements that could be made (but have not been) would not be recouped through energy savings within seven years.  Alternatively, an exemption may apply if the surveyor determines that the relevant improvements that could be made are likely to reduce the market value of the property by more than 5%.

An exemption is also available if consent from persons such as a tenant, a superior landlord or planning authorities has been refused or has been given subject to unreasonable conditions in relation to the upgrading works.

All exemptions must be registered. However, they only last for 5 years and do not pass automatically to a future owner.

A green checklist for Landlords and Investors

  1. Check your property portfolio and EPC ratings to establish which properties might be within the scope of the Minimum Energy Efficiency Standards
  2. Consider whether your property falls under any exemptions and how the lease terms work within the MEES deadlines.  Review your rights under the lease to enter to carry out any works.
  3. Keep in mind the financial cost of upgrading buildings and loss of rent during the refurbishment – budget for this!
  4. On any new leases or lease renewals consider negotiating green leases where the environmental management and costs of the property are shared.
  5. Explore increase rental and asset value as a consequence of obtaining BREEAM certification in relation to refurbishment or redevelopment works.
  6. Consider eco-proofing ideas such as eco-roofing, solar panels and low energy air conditioning.