UK Prime Minister’s new net zero stance set to impact the real estate sector

In an apparent U-turn on some of the Government’s net zero pledges, UK Prime Minister Rishi Sunak’s recent statement has created uncertainty around the position on Minimum Energy Efficiency Standards (MEES).

Some reports indicate that the Government will scrap plans that could have increased the burden on commercial property landlords. Here, Solicitor and property law expert Charlotte Flanders outlines what the changes could mean for the real estate sector.

The existing rules

Since 1 April 2023, it has been unlawful for a landlord to continue to let a commercial property where the EPC rating is below E without registering an exemption.

During a Government consultation in 2021, it was indicated that the these requirements would tighten as part of a proposal that — if implemented — would have meant that commercial properties subject to leases would need to have an EPC rating of C or higher by 1 April 2027 and B or higher by 1 April 2030 (or be covered by a registered exemption).

However — despite there being there being some evidence to suggest that EPC ratings are improving — recent analysis by Search Acumen suggests that there are still over 19,000 commercial buildings with non-compliant EPCs rated F or G. Despite EPC B or above potentially becoming mandatory by 2030, only 14% of rented commercial properties currently meet this standard.

Kicking the can down the road?

While many landlords may be relieved with this apparent change in the Government’s stance, others will see this as simply ‘kicking the can down the road’. After all, the UK is still committed to cutting greenhouse gas emissions by 68% before 2030 (based on 1990 levels) as part of its roadmap to achieving net zero by 2050.

It’s important to remember that climate change represents a genuine threat across the globe. In the UK alone, the real estate sector is estimated to be responsible for approximately 40% of the UK’s greenhouse gas emissions.

The shift towards a greener property market in the long run should be welcomed and encouraged. To achieve this, there needs to be a shift in emphasis to focus on implementing clearer regulations, more realistic targets and longer-term goals.

For now, all property owners should review their property portfolio to identify if any of their existing buildings are substandard and consider what options are available under the existing regulatory framework. Energy performance should be a continual consideration — any failures may impact on the operating costs of the building, as well as rental value and marketability.

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