The government has finally responded on commercial MEES, but uncertainty remains

After years of radio silence since the commercial MEES consultations, the government has finally set out its intended direction of travel in the commercial rented sector. For many landlords, the response will come as something of a relief.

The headline proposal is significantly less onerous than many had feared. Rather than requiring every rented commercial property to achieve EPC B by 2030, the government now intends to limit that requirement to buildings of more than 1,000 sq m, with the existing EPC E standard remaining for smaller premises. The proposed EPC C milestone in 2027 has also disappeared. But before anyone puts their retrofit programme on hold, it’s worth remembering that this is only an interim response. The detail that really matters is still to come.

Perhaps the biggest frustration is that we still don’t know exactly how the new regime will work in practice. The government has confirmed the broad policy direction, but left many of the practical questions unanswered. How will the 1,000 sq m threshold apply to multi-let buildings? What happens where premises are split or reconfigured? Will mixed-use assets be assessed as a whole or by individual demise? Until secondary legislation is published, investors are still making decisions without the full regulatory picture.

That uncertainty matters because MEES is no longer simply a compliance issue – it has become a valuation issue. For several years, the market has increasingly differentiated between assets that are future-proofed and those requiring substantial capital expenditure. Lenders are asking more questions about EPC ratings. Institutional purchasers routinely factor retrofit costs into pricing. Occupiers are becoming more selective as energy costs and ESG commitments influence leasing decisions.

The government’s softer approach may reduce some of the downward pressure that many smaller secondary assets were expected to face. However, it is unlikely to eliminate it altogether. Even where the law stops at EPC E, the market may not. Prospective tenants may still be deterred by buildings with poor environmental performance, even if they remain legally lettable. Higher energy bills, corporate sustainability policies and employee expectations all continue to push demand towards better performing buildings.

The regulatory minimum and market expectation are increasingly becoming two different things. For larger properties, meanwhile, the investment case has arguably become clearer rather than easier. Owners now know broadly what standard they are expected to reach and by when. The challenge is funding the improvements without undermining returns.

The retention of the seven-year payback exemption will therefore be welcomed by many landlords. In theory, it provides sensible protection against uneconomic expenditure, recognising that not every building can realistically achieve EPC B through proportionate investment. Older stock, complex industrial buildings and certain heritage properties may all continue to benefit. However, exemptions should not be viewed as a ‘get out of jail free’ card. They require robust evidence, formal registration and ongoing review. A purchaser carrying out due diligence will want to understand precisely why an exemption has been claimed, whether it remains valid and when it expires. A lapsed exemption inherited after acquisition could quickly become an expensive surprise.

There is also a danger that the removal of the 2027 EPC C milestone encourages delay. The temptation will be to defer capital expenditure while interest rates remain relatively high and construction costs continue to fluctuate. That may prove a false economy. Retrofit specialists, contractors and supply chains are likely to become increasingly unavailable as 2031 approaches. If anything, demand is likely to become concentrated in the years immediately before implementation, pushing up both costs and programme risk.

Perhaps the biggest takeaway from the government’s response is that the policy debate has largely shifted. The question is no longer whether commercial landlords will have to improve the energy performance of their buildings, but how far the market will move ahead of regulation. For now, landlords have more certainty than they did six months ago, but nowhere near enough to become complacent. Until the detailed regulations arrive, MEES will continue to influence acquisitions, disposals, valuations and asset management decisions long before it changes the law.

Andrew Knapp is a director at MEES Solutions