The headline: a two-tier system based on building size
The interim response, published jointly by the Department for Energy Security and Net Zero (DESNZ) and the Department for Business, Energy and Industrial Strategy, sets out how the government intends to implement a targeted approach to strengthening MEES in England and Wales, focused on supporting businesses that rent larger premises by helping to cut energy costs and improve energy efficiency.
The key policy decisions are as follows:
- From 2031, all privately rented buildings over 1,000 square meters in England and Wales will need to reach EPC B, where cost effective unless an exemption applies.
- Buildings at or below 1,000 square metres will continue to be subject to the existing minimum standard of EPC E. The previously proposed interim EPC C milestone for 2027 will not be taken forward, giving landlords and tenants more time to improve the efficiency of their buildings in a way that suits their buildings and lease agreements. Existing flexibility mechanisms, including the 7-year payback test and exemptions, will remain in place, ensuring that only improvements that are practical, affordable and cost-effective will be required.
What this means for your portfolio
If you own or let buildings over 1,000 sq m, this announcement is significant. Subject to the passage of secondary legislation, you will be expected to ensure those properties achieve EPC B by 2031 — where the cost of doing so is recoverable within seven years through energy savings or another exemption does not apply. If you have buildings that are currently rated EPC C, D or E, now is the time to begin thinking about an improvement strategy, particularly where works may require tenant co-operation or need to be planned around lease events such as breaks or renewals.
If your portfolio is made up of smaller properties (at or below 1,000 sq m), your position is unchanged. The existing EPC E minimum standard continues to apply, and the government is giving additional flexibility to SMEs and high street landlords of smaller properties to upgrade their buildings over time, with no set deadline for going beyond this level.
The abandonment of the 2027 EPC C milestone removes an immediate compliance pressure that many landlords had been preparing for. This gives additional breathing room for portfolio planning and capital allocation.
The 7-year payback test: your key protection
A critical safeguard remains firmly in place. Existing flexibility mechanisms, including the 7-year payback test and other exemptions, will remain in place, ensuring that only improvements that are practical, affordable and cost-effective will be required. This means that where the cost of energy efficiency improvements to a property over 1,000 sq m cannot be recovered within seven years through energy savings, you will not be compelled to carry out those works. Instead, an exemption can be registered.
The financial case for improvement
Where works are required or make commercial sense, the government estimates that tenants in the largest rented buildings stand to save energy and reduce their bills, collectively, by £360 million per year by 2031, protecting them from future energy shocks. Energy-efficient buildings also tend to command stronger rental demand and are increasingly favoured by lenders — making early investment in EPC improvement a strategically sound decision, not just a compliance exercise.
Which properties will be affected:
This announcement demonstrates the government is now favouring a targeted approach to strengthening MEES by focusing on larger properties. The rationale behind this being that whilst only 7% of non-domestic properties are over 1,000 square metres, they account for approximately 60% of electricity consumption and 70% of gas consumption in non-domestic properties. This targeted approach will seek to make a significant impact without placing a disproportionate burden on SMEs and high street occupiers and landlords.
Large corporates, national retailers, supermarket operators and logistics and distribution occupiers are most likely to be affected by this proposal with the asset classes most likely to be impacted being:
- Large offices (city centre and business parks);
- Logistics warehouses and distribution centres;
- Shopping centres, retail parks and large format retail units;
- Industrial units;
- Hotels and leisure facilities.
Important caveat: legislation is still required
The changes to raise MEES to EPC B for larger buildings will only take effect following the successful passage of secondary legislation through Parliament. This means the 2031 EPC B requirement is a confirmed policy intention, not yet law. Further detail on these proposals and the implementation of the threshold will be set out in the forthcoming government response to the public consultations, and the government aims to introduce legislation and updated guidance at the earliest opportunity, working with stakeholders to get the detail right.
We will continue to monitor developments and update you as secondary legislation and further guidance are published.
Our recommendations: steps to take now
Regardless of where your portfolio sits relative to the 1,000 sq m threshold, there are sensible steps to take in the near term:
- Audit your portfolio against the 1,000 sq m threshold and check current EPC ratings for all non-domestic let properties.
- Identify assets at risk — those over 1,000 sq m currently rated below EPC B — and commission professional assessments of the works and costs that would be required to improve their rating.
- Review your leases on those assets to understand what access rights and consent requirements apply to improvement works, and what costs can be recovered through service charges or other mechanisms.
- Plan around lease events — breaks, renewals, and lease expiries may provide natural opportunities to carry out works with minimal disruption to tenants.
- Assess exemption eligibility using the 7-year payback test for properties where improvement costs may be disproportionate.
How DWF can help
Our real estate team has extensive experience advising landlords and investors on MEES compliance strategy, lease structuring, and transactional risk in the context of energy efficiency regulation. If you would like to discuss the implications of these changes for your portfolio, please do not hesitate to contact us.
This article is intended as a general update and does not constitute legal advice. The policy described remains subject to the passage of secondary legislation and the publication of a full government response. Please contact a member of our team for advice specific to your circumstances.
Many thanks to Adam Lynch for his contribution to this article.
