What do commercial property owners need to be mindful about following the MEES Consultation?

What the latest consultation proposes

The MEES Consultation is designed to reduce energy consumption and carbon emissions related to commercial buildings in England and Wales.

While we await further communication following the closure of responses to the consultation in June this year, it is clear that the property sector has a lot of work to do in order to reach the minimum Energy Performance Certificates (EPCs) targets.

While the original consultation in 2019 laid out the Government’s intention to raise the minimum standard of EPCs from the current minimum “E” rating to a “B” rating by 2030, this more recent consultation sought to lay out the practicalities of how to do so.

The consultation largely focussed on implementation in several phases with the intention of avoiding a widespread rush from 2028 onwards and to motivate landlords and property owners to start preparations well in advance.

Thus, an interim milestone to achieve an EPC rating of “C” is proposed for 2027 and preceded by a two-year compliance window where landlords must either demonstrate that the threshold has been achieved or that they have registered an exemption for particular properties.

Concerns and Cluttons’ view

The consultation sought to answer some of the concerns raised by property industry experts:

Concerns and Cluttons' view

 

Cluttons recommendations for landlords:

  • Start to review existing properties now to analyse what work will be needed to meet the various phases of compliance laid out in the MEES consultation
  • Budgets and plans for work need to be put in place, particularly for landlords that own multiple older properties, as it could be that some of these could obtain an exemption
  • When budgeting, consider likely future rises in costs when planning now
  • Landlords should watch out and feed into the next two consultations on energy performance – one will look at a new rating system to measure and compare potential energy performance vs actual performance for large commercial buildings; the second will focus on mandatory non-financial reporting again for large businesses
  • Be mindful that many existing EPCs may be old and possibly wrong so re-running them using better software will provide greater accuracy and will provide a more transparent picture about the real work that needs to be done in the drive to net zero
  • Use an expert property consultant to analyse portfolios and advise on strategy, investment and activity required to meet targets.

Cluttons recommendations for lenders:

  • Now is an opportunity for lenders to lead the way on facilitating widespread commercial property compliance with the Government’s energy performance targets
  • Lenders could work with landlords to build in contingency periods and refinancing options for buildings that have lengthier or more complex retrofitting requirements
  • Lenders could also consider incentivising landlords with favourable lending terms for greener buildings
  • Lenders should watch out for (and consider inputting to) the next two consultations on energy performance when considering their strategies concerning EPCs – one will look at a new rating system to measure and compare potential energy performance vs actual performance for large commercial buildings; the second will focus on mandatory non-financial reporting again for large businesses.

Jonathan Rhodes, head of commercial valuations at Cluttons, says: “The Government has rightly put the property sector front and centre of its energy agenda and it is essential that each consultation builds in the concerns of the private sector experts charged with meeting the various targets. While 2027 and 2030 seem a way off, in property this is only one cycle and many things can change that affect and delay construction. Landlords must get a handle on their portfolios now in order to build a plan that is practical, cost efficient and allows the time for delays and complicated work.”

Rob Burke, head of building consultancy & project management at Cluttons, adds “Landlords must also be mindful that there are opportunities to improve many older EPCs by reviewing these and re-running them using current updated software. This will provide greater accuracy, often a better rating and a more transparent picture about the real work that needs to be done in the drive to net zero.”

Rhodes concludes: “In addition, it is crucial that all stakeholders work together to reach the right compliant levels and move the dial significantly for energy performance in the property industry. In the absence of Central and Local Government enforcement and any meaningful incentivisation, we believe that lenders could hold the key. By working with landlords to support them in their drive for EPC compliance, to favourable lending criteria for greener buildings, the banks can be both the carrot and the stick to a successful private sector drive for greater energy efficiency.”