To B or not to B: How will changes in EPC legislation impact asset management?

Author:
George Jerram Asset Management Director
020 7657 1854
Read time: 5 mins
Category: Innovate

Energy efficiency has gone from being a ‘nice to have’ for commercial and industrial properties to a legal requirement.

Emissions from the heating and power from non-domestic buildings now accounts for 12 per cent of all in the UK, meaning the introduction of the new legislation to tackle energy efficiency is certainly timely.

Legislative changes enforcing the improvement of the energy performance certificate (EPC) ratings of properties mean property owners need to react now to upgrade the rating of their assets.

However, there are challenges around achieving the respective ratings within the required time frames, including costs and engaging with tenants.

How is EPC legislation changing?

The Minimum Energy Efficiency Standards (MEES) Regulations was first introduced in 2018. It places legal obligations on commercial landlords to increase the energy efficiency rating of their buildings to a minimum EPC of B by 2030.

It is believed that the implementation of the EPC B will give a significant contribution to the UK’s net-zero ambitions.

As of April 2023, commercial properties must have a minimum EPC of E, with it being unlawful for landlords to grant leases or sell assets which do not comply with this standard.

The minimum EPC standard will rise to a C in 2027.

By April 2030, the MEES will be raised to mean that all commercial properties must meet a minimum standard of B.

This legislation will require a sharp rise in energy efficiency standards over the next eight years. The onus lies on property owners to ensure compliance.

Making changes today to meet tomorrow’s regulations

The introduction of the MEES Regulations requires landlords to make changes to buildings to improve EPC ratings. It’s important to understand the necessary changes and have a strategy as to how best to implement these across a portfolio of assets to stay ahead of the curve.

Changes which can be made to enhance EPC standards include adding further insulation to improve thermal efficiency, as well as installing more efficient heating and cooling systems. Roof-mounted PVs can support in generating renewable energy for units, reducing both carbon emissions and energy costs.

LED lighting is another key consideration for landlords. However, we need to be careful that this form of lighting is actually sufficient for occupiers within certain industries and sectors.

Old accommodation: cost efficient vs energy efficient

88 per cent of current stock has a rating of below ‘B’ – this represents a major challenge for the industry.

Cost will be a key driver as to ensuring compliance as all of the component changes to a unit come at an expense and both landlords and tenants (depending on lease structures) will need to act to ensure compliance

There are exceptions to the regulations, for example, with listed buildings. However, in the main, the changes place an onus on landlords to find solutions to achieve an EPC B rating within the required timescales. Cost is not a consideration in the legal framework imposing this obligation.

There will be instances where a unit cannot physically be brought up to the required regulatory standards. From an investment perspective, it could be more cost effective to knock down the existing accommodation and build a new unit to enable the required standards to be achieved.

Tenant cooperation 

Communication between landlord and tenants is critical to ensure regulations are met. The benefit of introducing more energy efficient assets is not just to ensure a box-ticking process for property owners. It will also reduce operating expenses to occupiers.

Agreements will need to be concluded between landlords and tenants as to how any required changes are to be implemented.

Where leases span beyond the statutory compliance period works may need to be carried out during the lease period to improve EPC standards.

Tenant’s will be legally obliged to ensure that any alterations they make to the building which may have negatively impacted the EPC standards are returned to the regulatory level once their lease expires.

Leases and licences for alterations will contain provisions to ensure any tenant works achieve the relevant EPC standards to ensure this.

Initiating early to meet changing legislation

The changes in EPC standards may seem a long way away, but it is imperative to ensure the plans are in place to ensure MEES-compliance.

At Chancerygate, we’re initiating early to be fully prepared. We are already in the process of making changes to the units which are part of our asset management portfolio to ensure all our accommodation is in line with, or exceeds, the regulations.

We are also proactively creating strong channels of communication with tenants to ensure they are fully aware of necessary changes.

Engaging with them on how best the changes can be effectively and efficiently implemented is key to ensuring our industrial units are compliant with the legislation not only for today, but for years to come.

Chancerygate manages in excess of £325m of assets across more than five million sq ft of commercial space in over 460 units. To find out more about how we can help with your industrial property requirements contact George Jerram on 020 7657 1854 or gjerram@chancerygate.com.

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