Regulatory uncertainty around Minimum Energy Efficiency Standards (MEES) is becoming an increasingly important consideration for mortgage brokers and property professionals, particularly as it begins to influence lending decisions, asset values and transaction timelines.
In this piece, Beth Myers and Rebecca Davison, Partners at Howard Kennedy, explore how ongoing policy ambiguity is affecting landlord behaviour across the commercial property market, and what this means for those advising on property finance and investment.
For several years, the narrative surrounding the energy performance of buildings has often framed landlords as reluctant participants in the transition to more efficient buildings. Yet across the UK property market, the real barrier to progress is increasingly clear – regulatory uncertainty around the future of Minimum Energy Efficiency Standards (MEES) is paralysing decision-making.
Far from resisting change, many landlords are ready to invest in upgrading their assets and improving the environmental performance of their buildings. What they lack is the clarity needed to plan, commit capital and execute improvements with confidence.
The UK introduced MEES in 2018 under the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015. The rules made it unlawful for landlords to grant new leases of properties with an Energy Performance Certificate (EPC) rating below E, unless exemptions apply. The first phase triggered widespread upgrades, with data showing a sharp decline in F & G-rated buildings, suggesting landlord motivation is not the issue.
Government policy initially signalled a steady ratcheting of standards. The expectation was that commercial properties would need to achieve EPC B by 2030, following an interim C rating requirement by 2027. But, the government’s response to the outcome of the 2021 MEES consultation was delayed and remains unpublished.
Momentum further stalled in 2023 when the government scrapped proposals to raise minimum EPC standards for residential rental properties. Although the commercial pathway was not formally withdrawn, the decision introduced significant doubt about the long-term trajectory of the regime.
Some argue that, despite regulatory ambiguities, landlords should nevertheless be investing in upgrading assets and that the lack of commitment demonstrates a short-sighted miserly attitude rather than a concern over regulatory change.
Upgrading a commercial building’s energy performance is rarely straightforward. Achieving EPC C or B can involve major interventions often requiring a complete reconfiguration of building services. The Better Buildings Partnership estimates that improving from EPC E to B costs roughly £2,000 per 100m.
These investments can run into millions of pounds on larger assets. More importantly, the most cost-effective upgrade path depends heavily on the exact regulatory target.
A landlord planning to reach EPC C by 2027 might choose incremental upgrades that improve performance just enough to meet the threshold. But if EPC B by 2030 becomes mandatory and enforcement proves robust, that strategy risks becoming a costly false economy.
For some assets, the cost of improving to EPC B could render it economically unviable, resulting in a need to redevelop or repurpose rather than retrofit. Landlords therefore face an investment dilemma – act now and risk doing the wrong works or wait for clarity and risk falling behind. Unsurprisingly, many landlords are choosing to wait.
Another spanner in the works for building upgrades, and one which is not addressed by regulators, is the allocation of costs for compliance. Who pays – should landlords or tenants shoulder the burden? There is a real lack of co-operation between landlords and tenants on how to improve asset ratings and who should ultimately bear the cost of upgrade works.
Some upgrades require tenant consent (with exemptions applying if such consent is not forthcoming), creating uncertainty and another layer of delay and uncertainty in multi-tenanted buildings.
Common lease structures offer no consistency and there is no widespread industry agreement as to who pays. This often results in stalled and strained negotiations, delayed upgrades and at worst can lead to inflated costs to all parties as they separately look to address similar issues in the same building. Any future regulation needs guidance on cost-sharing and recovery to unlock the current holding pattern.
If the government ultimately confirms stricter MEES thresholds, as is widely expected, a prolonged period of hesitation could create a damaging bottleneck. Retrofit capacity in the UK is already constrained. Skilled contractors, building engineers and specialist consultants are in limited supply.
If thousands of landlords suddenly rush to upgrade assets ahead of a deadline, the industry may simply lack the capacity to deliver, resulting in even higher costs, further delays and a wave of stranded assets and unlettable buildings.
It is clear that institutional investors, lenders and corporate tenants are all pushing for higher-performing buildings. Environmental performance is now closely tied to asset value, financing conditions and occupier demand. But, without a clear trajectory for MEES, investors are struggling to underwrite retrofit programmes, and lenders struggle to price transition risk.
The cumulative impact of the regulatory uncertainty surrounding MEES has led to a market where capital investment programmes have stalled, transactions are slowing, lease negotiations are becoming more complex, and portfolio strategies cannot be finalised.
Landlords have already demonstrated strategic interest in improving the energy performance of their buildings. They know that MEES compliance enhances value, reduces risk, and aligns with tenant expectations. What is holding them back is not unwillingness but uncertainty.
