At COP26 in Glasgow in 2021, the UK government affirmed its commitment to be a net-zero carbon producing country by 2050. Part of the implementation of that initiative has come in the Minimum Energy Performance of Buildings (No. 2) Bill that seeks to raise the energy efficiency of residential properties to band B by 2035. The measures being put in place will mean any residential property being let on a new tenancy will require a Band C rating from 31 December 2025 and all existing tenanted properties to have a Band C rating from 31 December 2028. There are exceptions, yet to be fleshed out, where the works required would not be practical, cost effective or affordable.
Measures to raise the energy efficiency of commercial properties are still in consultation stage but it’s likely that the government will take a similar approach to that of residential properties. The proposal in the government’s white paper on the matter confirmed that MEES for commercial properties would need to be Band B by 2030.
This aim is likely to be delivered by two ‘compliance windows’ the first being 1 April 2025 to 1 April 2027, the second being from 2028 to 2030:
- From 1 April 2025 all commercial buildings being leased will have to have a valid EPC;
- From 1 April 2027 the minimum energy efficiency rating rises to Band C otherwise a property cannot be let;
- From 2028 to 2030 a landlord will have to provide an EPC with a minimum energy efficiency rating of Band B.
As the consultation on these proposals is ongoing, the details to date are scant. It’s likely that there will be a similar exception to that we see in the residential property bill on the grounds of works not being practical, cost effective or affordable.
What should Pension Trustees be doing?
Notwithstanding the fact that there’s no draft legislation before parliament yet, in light of the government’s net zero targets it’s likely the government will implement a regime similar to those under consultation. This potentially has huge impacts on pension schemes and the ability for pension scheme landlords to be able to lease the commercial properties in a scheme’s portfolio. So, what would be prudent steps for Pension Trustees at this stage?
- Simply, keeping members up-to-date with the changing regulatory landscape and what the likely impacts will be on the members.
- Undertaking a review of the energy efficiency ratings of the properties currently under their control to:
- Ascertain whether the properties have an EPC; and
- Evaluate the ratings of those properties in line with the current proposals.
- Evaluate the likely costs to schemes of ensuring that properties are going to be compliant.
- Making resources and contacts available to members so they can obtain advice on the likely requirement, nature and cost of any works.
- Reviewing current policies around which properties are suitable for schemes to ensure that schemes are not acquiring properties that are likely to be loss making to the scheme in the future.
- Reviewing and amending legal documentation, particularly occupational leases, to ensure that the scheme will be able to carry out requisite energy efficiency works if necessary.
- Seeking ways for schemes mitigate costs of complying with the energy efficiency requirements – sharing costs with tenants, conversion works, change of use, airspace development etc.
It’s important that Pension Trustees, in the interests of their members, get ahead of the regulations as soon as possible to both mitigate the costs to schemes and protect their members’ pensions.
