What Commercial Landlords Need To Know About Energy Efficiency Standards?

The regulatory landscape surrounding energy efficiency in commercial property continues to evolve, placing increasing obligations on landlords in England and Wales.

Understanding the Minimum Energy Efficiency Standards (MEES) and preparing for future tightening of requirements is now essential to protect asset value, maintain income streams, and avoid significant financial penalties.

Commercial Property Solicitors can play a key role in this regard. With a thorough understanding of existing legal frameworks and a keen eye on governmental proposals, specialists in commercial property law can provide much needed insight into the regulations for non-domestic tenancies.

What are the energy efficiency standards?

In England and Wales, properties are subject to statutory minimum energy efficiency standards (MEES). These are measured by reference to an Energy Performance Certificate (E It’s worth noting that MEES and EPCs relate to both residential and commercial landlords. However, there are specific compliance factors of which commercial landlords need to be aware.

Rules for commercial renting: compliance requirements for landlords

As of April 2023, it is unlawful for landlords to continue to let commercial properties with an EPC rating below E, unless a valid exemption has been registered. This marked a significant shift, extending the prohibition not only to new leases but also to ongoing existing tenancies.

For landlords of commercial property, this means that a property with an F or G rating can no longer be lawfully let without intervention or reliance on a statutory exemption.

Future changes: proposed updates for commercial lettings

The government has now provided an interim response to the 2019 and 2021 consultations on strengthening non-domestic MEES in England and Wales. Rather than proceeding with the previously anticipated staged increase across the sector, the government intends to take a more targeted approach focused on larger rented premises.

No interim EPC C milestone: the previously proposed interim EPC C milestone will not be taken forward.

From 2031: private rented non-domestic buildings over 1,000 square metres in England and Wales are proposed to require an EPC rating of B, where cost-effective.

Buildings below 1,000 square metres: these are intended to remain subject to the current minimum standard of EPC E.

Existing flexibility mechanisms, including the seven-year payback test and exemptions, are expected to remain in place so that only improvements which are practical, affordable and cost-effective are required.

The proposed changes to raise MEES to EPC B for larger buildings will only take effect following the successful passage of secondary legislation through Parliament. Further detail is expected in the government’s full response and updated guidance.

Financial penalties for non-compliance

Failure to comply with MEES regulations can result in substantial financial penalties. The level of penalty depends on the duration of the breach:

Breach of less than 3 months:

Up to £5,000, or
Up to 10% of the rateable value,
whichever is greater (subject to a cap of £50,000)

Breach exceeding 3 months:

Up to £10,000, or
Up to 20% of the rateable value,whichever is greater (subject to a maximum of £150,000)

In addition to financial penalties, there is also the risk of publication of the breach, which can have reputational consequences.

Exemptions: when non-compliance may be permitted

The regulations recognise that, in some circumstances, compliance may not be feasible. In such cases, landlords may rely on registered exemptions, including but not limited to:

Third-party consent exemption:

Where required consent (e.g. from a tenant, lender, or superior landlord) cannot be obtained.

Devaluation exemption:

Where recommended improvements would reduce the property’s value by more than 5%.

Listed buildings exemption:

Where the building is listed or otherwise protected, and proposed works would adversely affect its character or appearance.

Where an exemption applies, it must be formally registered on the Private Rented Sector (PRS) Exemptions Register before the property can be lawfully let. Importantly, exemptions are time-limited and must be reviewed periodically.

Planning ahead: practical considerations for commercial landlords

Although EPC E remains the current legal minimum, landlords should continue to plan ahead. For landlords with larger private rented non-domestic buildings over 1,000 square metres, early preparation for the proposed 2031 EPC B requirement may help manage cost, risk and lease negotiations. Landlords of smaller premises should continue to ensure compliance with EPC E, monitor updated guidance and consider energy efficiency upgrades over time.

Key steps include:

1. Identify at-risk properties

Review your portfolio to identify properties currently below EPC E, as these remain the immediate compliance risk. For buildings over 1,000 square metres, also consider whether they are likely to meet the proposed EPC B standard by 2031, where cost-effective.

2. Commission an early EPC review

Engage an accredited assessor to evaluate current EPC ratings and identify the works that may be required to maintain compliance with EPC E and, for larger buildings, to assess the feasibility and cost of achieving EPC B under the proposed future regime.

3. Plan energy efficiency upgrades

Typical improvements may include:

• Upgrading lighting to LED systems
• Improving insulation
• Installing more efficient HVAC systems
• Incorporating renewable energy solutions

These works should be factored into asset management strategies and lease negotiations.

4. Budget strategically

Spreading the cost of improvements over time can significantly reduce financial pressure. Incorporating energy upgrades into planned maintenance cycles is often the most cost-effective approach.

5. Stay informed

MEES is a developing regulatory area. Landlords of commercial property should monitor government updates, updated guidance and the progress of any secondary legislation to ensure ongoing compliance with evolving standards and timelines.

Conclusion: Forward Planning Is Key for Commercial Landlords

The direction of travel remains towards improving energy efficiency, but the government’s latest position is now more targeted. Commercial landlords should understand whether their premises fall above or below the proposed 1,000 square metre threshold and plan accordingly.

Failure to comply with the current MEES regime may result not only in financial penalties but also in void periods, reputational risk, stranded assets and diminished property values. Those who invest sensibly in energy efficiency may benefit from enhanced asset performance, improved tenant appeal and greater resilience against future energy price volatility.

From both a legal and commercial perspective, forward planning is essential. For more support and advice on managing commercial lettings, get in touch with our commercial property team.