Energy Performance Certificates (EPC) will become increasingly important for property owners over the coming years – both residential and commercial alike. But what is the minimum EPC rating for commercial property and why should you care?
In a nutshell, EPCs indicate how energy efficient a building is and give it a rating. Buildings will be ranked from G (inefficient) to A (very efficient). These ratings will show how costly powering the property could be and how high its carbon emissions may reach.
EPCs are needed whenever a property is built, sold or rented and they are valid for 10 years from the date of issue. They’re produced by approved domestic energy assessors, who will highlight what changes could be made to a property to make it more efficient.
As the Government focuses on its Net Zero Strategy, more stringent EPC rules will come into play over the coming years. Keeping on top of these changes will be especially important for commercial investors.
What is the current minimum EPC for commercial assets?
Currently, EPCs are required for commercial property owners who rent out or sell their business premises. They’ll also be needed where buildings under construction are finished or; where there are changes to the number of parts used for separate occupation and these changes involve providing or extending fixed heating, air conditioning or mechanical ventilation systems.
For commercial landlords, environmental standards are set to reach new heights from 2023. Currently, Minimum Energy Efficiency Standards (MEES) prevent landlords of commercial properties in England and Wales from granting new leases unless they have an EPC rating of E or higher. These rules do not apply to existing leases.
What is the minimum EPC rating for commercial property going to be?
However, from April 1 2023, both new and existing commercial lettings must have an EPC rating of E or above. Evidently, what the minimum EPC rating for commercial property is now will not matter much over the coming months. Landlords will not be able to continue with an existing tenancy if the EPC is below an E ranking. Under current plans, a C rating will be needed by 2027 and B will be the minimum from 2030.
The Government estimates this will eventually cover around 85% of the UK’s non-domestic rented stock. These implementations are likely to be needed through two “compliance windows”, where EPC documentation will be required at various points between 2025 and 2030. Commercial landlords should mind these dates.
Substantial fines will be issued on those who fall foul of the rules. The most serious breaches could have fines of up to £150,000 levied. Non-complying landlords may also be “named and shamed” on a public register. Worryingly, investors across the UK could be underestimating the likelihood of these costs too.
The Government estimates around 18% of current commercial properties are in the F and G EPC brackets. In London, 80 to 90% of the commercial stock may be rated C or below. Therefore, it’s important to know what the minimum EPC rating for commercial property is for the sake of your budget.
Property owners will want to act quickly on upgrading their commercial lots, given how costly the investments could be. In hitting the 2030 minimums, the cost to the UK’s industrial, manufacturing, logistics and warehousing property stock is expected to reach £30bn, according to Avison Young.
How to improve your EPC ratings?
Fortunately, there are many options available to commercial landlords in how they can improve their EPC ratings. Generally, any improvements to a property’s energy efficiency can improve a rating. A good place to start with is insulation.
Poor insulation can be a major cause of energy loss. Especially for commercial spaces such as warehouses which tend to have large roofs and wall surface areas. This can be amended through upgraded cladding or refurbishment works which, initially, may prove expensive, but should be offset by lower energy bills.
Additional upgrades can also include better heating, venting and air conditioning systems. Energy efficient lighting upgraded glazing or investment in solar panels can all pay off down the line. A lot of planning may be needed for these upgrades, but there is plenty of support out there to help investors carry the burden.
Investors who are still unsure of what the minimum EPC rating for commercial property is, or of what they need to do moving forward can turn to public entities for guidance. The Carbon Trust offers independent advice on efficient energy usage for businesses and the installing of renewable energy sources. The Energy Savings Trust also has example case studies of best practices, along with other energy efficiency resources and events.
There are also a range of Government schemes which offer loans, grants, or subsidised energy-saving measures to support small businesses. Recent examples include the Low Carbon Workspaces scheme which provided grants of up to £5,000 to small businesses to implement energy efficiency measures, or the Business Energy Efficiency Programme which offered similar grants of up to £20,000
MFS can help you with flexible bridging loans in as little as 3 days, if you need fast finance for your renovation or refurbishment plans.
Why should you care?
So, investors may know what the minimum EPC rating is for commercial property is, but is there any tangible reason to care? Even without the legislative backdrop, commercial property owners could benefit from embracing environmental upgrades on their own initiative. Greener property may result in higher returns and/or lower costs.
Improvements made to get higher EPC ratings could eventually result in higher rents, boosting revenues for owners and landlords. More efficient buildings could also cut utility costs and unexpected headaches. A new boiler may be less likely to break down than one decades old, for example.
Environmentally efficient commercial property could also hold a premium in the market. In the residential sector, renters highlighted they’d be willing to pay more for greener homes, while sustainable property has emerged as a top priority for Generation Z buyers.
These priorities may be reflected among businesses over coming years, as companies seek out the greenest offices possible.
MFS are specialist finance lenders. MFS are not financial advisors, therefore, investors are encouraged to always seek professional investment advice.