We all know that sustainable initiatives can often save occupiers’ overheads on, for example, heating and electricity, but the value of sustainability just got real. On 1 April 2018 the Minimum Energy Efficiency Standards (MEES) will come into force, making it against the law to agree a new lease on a property with an F or a G Energy Performance Certificate (EPC) rating. From April 2023 this will be the case for all existing leases, not just new ones.

The marketability of properties with sub-standard EPC ratings is already being affected and this is only going to increase as we move towards 2018. After all, where is the value in a property that can’t be let? Landlords with upcoming market rent reviews should be wary of the influence of an EPC rating on a property valuation and the potential risks that could be endured if MEES is overlooked. 

We’ve already seen cases where landlords have paid penalties. In one such case, a high-street unit with an EPC rating of G paying a rent of £200,000 per annum underwent a lease negotiation. A five-year reversionary lease with three months rent free was offered. However, the occupier was concerned about the EPC risk in the new period, during which the MEES regulations would come into force. The outcome saw the occupier negotiating an additional three-month rent-free period worth £50,000 in order to mitigate operational risk owing to the poor EPC rating.

If in doubt, there are measures available which can help to improve EPC ratings and property valuations and also offer further cost savings by ultimately delivering a more efficient building. For example, we carried out a £700,000 retrofit reducing the number of boilers in a building, introducing more efficient models and LED lighting.The building moved from a G to a C rating, carbon emissions (and energy costs) were reduced by 63 per cent over the investment hold period and full payback (through reduced energy bills) was achieved in less than five years.

The moral of these two contrasting tales is to consider your risk exposure today because sustainability is becoming ever more valuable.

Further information

For more details, contact Savills Environment and Sustainability