MEES reset: EPC B requirement for larger commercial buildings

The government has finally given clarity to real estate investors on the future direction of Minimum Energy Efficiency Standards (MEES) for the commercial rental sector in England and Wales. The government has confirmed that it will proceed with a more targeted EPC B requirement for larger privately rented commercial buildings, rather than applying the higher standard across the whole commercial rental market.

What has the government announced?

• From 2031, privately rented commercial buildings over 1,000m² in England and Wales will be required to achieve an EPC rating of B, where cost effective
• Buildings below 1,000m² will remain subject to the current minimum standard of EPC E
• The previously proposed interim EPC C milestone for 2027 will not be taken forward
• Existing exemptions will remain available, including the seven-year payback test.

A softer approach than expected

The government's announcement narrowing the immediate policy focus to larger assets removes the regulatory burden for smaller commercial premises whose owners may otherwise have struggled to find the necessary capital and retrofit expertise needed to deliver a significant increase in energy efficiency standards.

It is perhaps surprising that the seven-year payback test will remain available as an exemption. Under this cost effectiveness test, a landlord is only required to carry out an energy efficiency improvement if the expected energy bill savings over seven years are equal to, or exceed, the cost of carrying out the improvement. If the works do not meet that test, the landlord will be able to register an exemption. 

No EPC C milestone in 2027

The absence of an interim milestone should not be treated as a reason to delay action. Assets over 1,000m² that are materially below EPC B may still require significant lead-in time to assess options, obtain consents, procure works and manage disruption.

It is a pragmatic response to the delay in finalising the MEES policy. Landlords and tenants will have more time to align improvement works with lease events, refurbishment cycles and decarbonisation strategies.

Other points to watch

The government has previously stated that it intends to revisit the current heritage exemption. It will also undertake further work on whether privately rented buildings should require a new EPC mid-tenancy when an existing EPC expires.

What should investors do now?

For investors acquiring, refinancing or actively managing commercial portfolios, the 1,000 square metre threshold will need to be factored into asset management planning. Key questions will include:

• whether the asset is over 1,000m²
• how far it is from EPC rating of B
• whether improvements are cost effective
• whether tenant consent or co-operation is needed
• any other constraints on improvements.

Much needed certainty for investment decisions

The announcement provides welcome clarity after a long period of uncertainty about future MEES requirements. The EPC B requirement in 2031 gives owners, purchasers and funders a clearer basis on which to assess transition risk, prioritise capital expenditure and engage with occupiers.