Why a Mininum B Rating Matters to Value, Leasing and Refurbishment Strategy
Executive Summary
- The Government has confirmed a revised approach to non-domestic MEES in England and Wales, with privately rented non-domestic buildings over 1,000m² intended to reach EPC B from 2031, where cost effective.
- Buildings below 1,000m² remain subject to the current EPC E minimum standard for now, but future legislation may still tighten requirements for smaller buildings.
- The previously proposed EPC C milestone for 2027 is not being taken forward.
- This does not remove the need for action. Many owners should now be reassessing their EPC position, particularly where the current certificate predates August 2022, you may not have an accurate picture of your building.
- The commercial impact reaches beyond compliance. EPC strategy can affect capex planning, lease events, marketability, dilapidations discussions and financing terms.
- SEA Consulting are leading commercial energy assessors, providing cost-effective improvement advice and detailed MEP refurbishment specifications for contractors to follow.
Contact SEA Consulting for an EPC survey and targeted improvement advice, along with MEP specifications for refurbishment works. We can help you move from EPC compliance risk to a deliverable works strategy:
Email: epc@seaconsulting.co.uk
Phone: 020 8744 0544
What Has Changed in the Revised Non-Domestic MEES Approach?
The Government’s latest update on non-domestic Minimum Energy Efficiency Standards gives the market clearer direction, but not a reason to relax. The headline change is that from 2031, privately rented non-domestic buildings over 1,000m² in England and Wales are intended to meet EPC B, where that is cost effective. Buildings below that threshold would remain at the current EPC E minimum standard for now, and the previously proposed interim target of EPC C by 2027 will not be taken forward. On paper, that sounds like a lighter touch than many landlords and advisers had expected. In practice, it still leaves some important decisions to be made now.
For owners of larger buildings, the direction of travel is now far more defined. For owners of smaller buildings, the pressure may feel less immediate, but that should not be mistaken for a permanent reprieve. Regulation can move in stages, and the market often starts adjusting before the law fully catches up. That matters because energy performance is no longer just a compliance issue. It is increasingly tied to refurbishment plans, leasing strategy, running cost expectations, the way buildings are presented to the market, and, in some cases, the way lenders and purchasers assess risk.
The exemptions and payback test remain
Importantly, the existing framework of exemptions stays in place, as does the seven-year payback test. That test means landlords are only required to carry out measures that pay for themselves through energy savings within seven years. Where works fail that test, or where other recognised exemptions apply, the requirement does not bite in the same way.
In practice, this keeps the obligation tied to what is affordable and sensible. It does not, however, remove the need to understand your position. Claiming an exemption still requires evidence, assessment and proper registration.
The 2022 methodology change and why historic EPCs can mislead
Many commercial EPCs currently in circulation were produced before the major methodology change in 2022. Those certificates are still legally valid, but the rating may have changed by as much as 1-3 grades, This is based on an exercise SEA Consulting carried out, where we reviewed over one hundred commercial EPCs that had originally been processed under the previous software and recalculated them under the updated approach without changing the underlying building model.
As a practical rule of thumb, EPCs with an expiry date before August 2022 should be reviewed before making any decisions.
Additional was the EPC produced as a tick box exercise for the cheapest cost or was it carried out as a rigorous and professional survey of a valuable asset.
Smaller Buildings Still Need to Pay Attention to MEES Regulatory Changes
Smaller buildings should not read the latest announcement as a green light to forget about energy performance. The current threshold provides short-term relief for smaller buildings, but it would be prudent to expect regulatory pressure to widen over time, as has happened with other strands of energy legislation.
When a refurbishment is happening, it would still be prudent to aim for a B rating. In the current market, tenants are more sensitive to running costs, lenders are more cautious with there term and may even offer better terms for B rated buildings. Additionally, investment funds and blue chip companies want better performing buildings as part of their property portfolios and rented space to satisfy their ESG and investor expectations. They will still want buildings as spaces less than 1,000m2 to achieve A and B ratings.
What Do the Updated MEES Regulations Mean for You and Your EPC Ratings?
What it means for owners and investors:
For landlords and investors, the revised approach is commercially significant because it gives a clearer direction of travel. Although the legal framework is now more targeted, EPC performance is already becoming more important in acquisition, disposal and refinancing decisions.
At SEA Consulting, we are already reviewing EPCs for prospective tenants and purchasers so they can understand the likely cost and practicality of improving a building to a B rating before committing. A building with no clear route to improvement can quickly become harder to justify to purchasers, lenders or tenants.
Older stock with gas-based heating, dated lighting and centralised plant may be more exposed than the current certificate suggests. EPC performance affects more than compliance; it can shape capital expenditure planning, plant replacement decisions, lease events, asset pricing and refinancing discussions.
What it means for managing agents and chartered surveyors.
Managing agents and chartered surveyors will play a key role in preparing portfolios, coordinating assessments, prioritising works and advising owners where investment should be directed first.
With EPCs being tied into leases, occupiers will also have a clear interest, as energy efficiency improvements can directly affect running costs, service charges and future lease discussions. Can you allay your tenants fears that they will not be liable for significant EPC upgrade costs.
EPCs should be treated as more than a tick-box item. EPC reviews should be considered alongside other due diligence exercises when advising on acquisitions, disposals, lease events, asset strategy and dilapidations.
What this means for tenants
For tenants, the revised approach matters for different reasons. Occupational costs remain a live issue, and the Government’s modelling points to significant energy bill savings where larger premises are improved.
In a more competitive market, tenants increasingly expect buildings to perform well. With greater choice available, inefficient and poorly rated buildings will be less attractive.
Green lease terms are also becoming more common, particularly where tenant fit-out works could affect the EPC rating. Before committing, tenants should understand what impact their proposed alterations will have and whether the existing EPC rating is correct.
They should also consider whether the landlord may need to carry out disruptive upgrade works during the lease term, and whether any associated costs could be recovered through the lease or service charge.
For occupiers negotiating leases that run towards 2031 and beyond, energy performance should be understood before signing, not after. The EPC rating can form part of wider negotiations around service charge expectations, incentives, works timing and lease flexibility.
What this means for fit out contractors
Fit-out contractors can no longer assume that proposed works will automatically support the required EPC outcome. Contracts are increasingly including clauses that require a minimum EPC B rating as part of the works specification.
Before pricing or starting the works, it is important to know whether the proposed design has been tested against the EPC target. If not, the contractor may be left to determine how a B rating can be achieved, whether it is achievable within the proposed scope, and what that means for cost.
At SEA Consulting, we work with contractors to resolve these issues early, helping reduce risk, avoid redesign and look to reduce the overall capital cost of the works where possible.
The Wider Commercial Impact: CapEx, Dilapidations and Finance
The commercial effects are wider than many may assume.
CapEx planning:
- What is the cost of a achieving a B and how much margin needs to be factored in.
- Are there trade offs between capital expenditure and running costs.
- Are there implications to disruption and income streams
- Are there any parts of the existing plant that can be reused.
Dilapidations and lease-end strategy:
- Will the property drop below a B rating if a dilapidations program is enforced
- Was the EPC rating accurate and up to date when the lease was signed.
- SEA has already save a tenant £3m in court over a dilapidations claim surround the EPC rating.
- Do works need to be scheduled around lease end dates and done in parts.
Finance:
- Lenders will likely dictate some of the practical implications
- Future performance, upgrade cost and asset resilience are likely to attract increasing scrutiny.
- Some lenders already give preferential rate on A/ B rated properties
- Will commercial finance terms will now require a min B rating, currently they require an min E rating.
- Will there be different terms for different sized building or will lenders take a blanket approach to all commercial property with the future in mind.
- A building with no clear route to improvement may face harder questions than one supported by a current review and practical improvement strategy. Older EPC data alone is unlikely to answer those questions convincingly.
Case Study: From EPC Risk to a Practical Works Strategy
A recent SEA Consulting case study shows how EPC risk can be turned into a practical works strategy.
SEA was instructed on a multi-tenanted office building in Leeds to carry out a MEP condition survey alongside an EPC rating improvement report. The building had an EPC D on record, but SEA found that under the updated 2022 methodology it would now only achieve an E. The review showed that around 61% of the building’s carbon emissions were linked to heating, with the gas boiler as the principal issue, and that significant parts of the MEP services were nearing the end of their economic life. Two realistic improvement strategies were developed. One retained the existing four-pipe fan coil approach with targeted upgrades. The other replaced the existing arrangement with a phased VRF air conditioning strategy aligned to lease expiries and floor-by-floor refurbishment. The preferred route saved the client over £1.1 million in indicative capital expenditure and reduced building running costs by around 38%, while minimising tenant disruption by tying the works to lease events. The value there did not come from the certificate alone. It came from understanding what the certificate meant and turning that knowledge into an informed works strategy.
That point is worth dwelling on. The best response to a weak or uncertain EPC position is not always to do the cheapest apparent measure. Nor is it always to best to rush into a major refurbishment. Good advice sits in between those extremes. It identifies what is driving the rating, what realistic options exist, what can sensibly be phased, and where the bigger commercial risks sit. In some buildings, a planned sequence of MEP upgrades tied to tenant churn can make much more sense than a single expensive intervention. In others, the real value lies in recognising earlier that a building’s existing services strategy is becoming a long-term liability.
A Quick Sense-Check for Owners and Advisors
- Does the current EPC predate August 2022?
- Is the building over 1,000m²?
- Are the heating and cooling systems ageing or gas-led?
- Are lease events, refinancing discussions or refurbishments likely within the next few years?
- Is there a current practical improvement plan in place, or only a historic certificate?
If several of those questions point in the wrong direction, it is probably time to review the position properly.
Final Thoughts and Next Steps
SEA Consulting are MEP building services engineers providing EPCs, cost-effective improvement advice and refurbishment specifications. We help clients move from EPC compliance risk to a practical works strategy, whether that means reviewing an older certificate, testing options for improvement, or developing a deliverable technical scope for refurbishment works.
The sensible first step is also the simplest. Understand where your portfolio stands today. Establish the current EPC position of each building, identify the ones most at risk of falling short of B, and build a realistic plan for closing the gap well ahead of the deadline.
SEA consulting will continue to monitor developments closely as these proposals move through the legislative process, and to keep clients informed as the detail firms up. If you would like a clear read on where your buildings sit against the 2031 target, and a practical view of what getting there involves, we would be glad to talk it through.
The latest Government update has narrowed the immediate target, but it has not reduced the need to act early. For larger rented buildings, the route to EPC B is now a core part of asset strategy. For smaller buildings, the direction of travel still needs to be watched closely, and B should be aimed for as SEA Consulting expect all commercial buildings to need a B rating.
For landlords, occupiers, agents and surveyors, the key question is no longer whether EPCs matter. Was it treated as a low-cost tick-box exercise rather than an important and rigorous assessment of a valuable asset.
SEA Consulting are MEP building services engineers providing EPCs, cost-effective improvement advice and refurbishment specifications. We help clients turn EPC compliance risk into practical works strategies, from reviewing older certificates and testing improvement options to developing deliverable technical scopes for refurbishment projects.
The first step is straightforward. Understand where your portfolio stands today. Confirm the current EPC position of each building, identify those that will not achieve a B, and create a realistic plan to close the gap well before the deadline.
SEA Consulting will continue to monitor developments as the proposals move through the legislative process and keep clients informed as the detail becomes clearer. If you would like a practical view of where your buildings sit against the 2031 target, and what improvements may be required, we would be happy to discuss it with you.
Read the full Government update here.
Contact SEA Consulting for an EPC survey and targeted improvement advice, along with MEP specifications for refurbishment works. We can help you move from EPC compliance risk to a deliverable works strategy:
Email: epc@seaconsulting.co.uk
Phone: 020 8744 0544