MEES – the risks to office Tenants

The UK government has set a target for at least 40% reduction in greenhouse gas emissions from buildings by 2030, and to achieve net zero carbon emissions by 2050. Accordingly, there are several future dates around Energy Performance Certificates (EPCs) for commercial properties, including office buildings, that office Tenants should be aware of; 2025, 2028 and 2030, where potential regulatory changes may take place.

EPC regulations are expected to become stricter in order to meet the emissions goals, with a proposal that all new tenancies from 1 April 2025 and all existing tenancies by 1 April 2028 must meet band C or higher on an EPC, and B or better by 2030. Whilst these targets are not yet confirmed, an occupier will be well-placed to be mindful of this potential revision to minimum standards for any building that they may be considering occupying across this timeline.

The main risk for office Tenants regarding MEES is that their Landlord may need to make energy efficiency improvements to the building in order to comply with the regulations, which could lead to disruptions and increased costs for the occupiers. If a Landlord fails to meet the minimum standards, they may face financial penalties, which could ultimately lead to the termination of the lease. This could result in office Tenants having to prematurely relocate their business - clearly undesirable.

Another risk for office Tenants is that if a building is not energy efficient, it can be more expensive to heat and cool, thus leading to higher energy bills - something that was brought into stark focus in 2022/2023 with the significant increase to the costs of utilities. This can be a particular concern for Tenants who are responsible for paying their own utility bills, such as those in a conventional lease space, as opposed to those in serviced offices where utilities are included in their rent. That said, if the serviced office provider is experiencing increased costs then it will simply be a matter of time before those costs are passed on to their clients.

And of course, given the increasing focus on sustainability and environmental issues in the business world, office Tenants may also face reputational risks if they are seen to be occupying a building that has poor energy performance. This could potentially impact the Tenant's ability to attract and retain customers, employees, and investors who prioritize sustainability.

Overall, the risks associated with MEES for office Tenants highlight the importance of considering energy efficiency when selecting an office space, whether that be a leased office or a serviced office. It is important for Tenants to work with trusted advisors to ensure that their next occupational commitment is one that has had all potential considerations and risks accounted for and mitigated.