Landlords brace for the compliance and cost challenge of rising UK energy efficiency standards

Minimum Energy Efficiency Standards (MEES) regulations set a threshold for the minimum Energy Performance Certificate (EPC) rating that landlords must achieve for privately rented property in England and Wales. Since 1 April 2023, landlords have been unable to let or continue to let property with an EPC rating lower than E.

The government announced in its January responses to last year's consultation on improving the energy performance of privately rented homes that MEES for residential tenancies will rise to a C rating by 2030. MEES will also be extended to the social rented sector in England by 2030 and is to be included in the Decent Homes Standard.

In contrast the government is yet to announce changes to minimum standards for non-domestic EPCs, and there continues to be a lack of clarity on the future trajectory. However the expectation is that the minimum rating will be raised to C and then B for commercial properties within the next five to 10 years.

With a large proportion of commercial property currently thought to be below the EPC B threshold, landlords will need to make significant investments in their portfolios over the coming years in order to continue to let them lawfully. However, the question remains: who will bear the cost of these energy improvement works?

Recovering costs 

The liability for carrying out energy improvement works sits with the landlord, but the costs may be recoverable through service charges depending on the wording of the lease.

If a lease explicitly allows for the recovery of costs for replacement or improvement works, then the landlord can likely recover the costs of energy improvement works regardless of whether the item being improved or replaced is beyond economic repair.

However, most service charge provisions will contain a caveat requiring an item to be beyond economic repair or for it to be reasonable for the landlord to do works to that item in order to recover costs from the tenant. This caveat may then limit recoverability.

A landlord may also be able to recover the cost of energy improvement works from a tenant as part of a subsequent rent review. This will depend on both the assumptions and disregards in the rent review clause and whether the costs are otherwise recoverable through service charges. 

A tenant should not have to pay twice for the cost of energy improvement works but, if those works are not service charge recoverable, those tenant-friendly service charge provisions may, in turn, increase the market rent.

Dilapidations claims

Another way that landlords may try to recover the cost of energy improvement works is through dilapidations claims at the end of a lease term.

A landlord may take the opportunity when a tenant has vacated to carry out major energy improvement works to future-proof the property against increases to the EPC threshold.

If items that are being replaced or improved are out of repair, a landlord may be able to recover the costs as part of a claim. However, if the landlord's works are substantial and go beyond repair, tenants are likely to have a supersession defence to much of the dilapidations claim. 

Mitigation strategies

Given the number of properties that will require substantial energy improvements over the coming years, what other options are available to landlords to mitigate costs?

If properly planned, landlords can use MEES-related works to reduce their business rates liability. As landlords will be aware, non-domestic rates are payable by the occupier, so during a lease they will usually be payable by the tenant.

However, if the landlord takes the property back in order to undertake major energy improvement works, the liability returns to the landlord.

The first option to minimise business rates expenditure is to make use of empty property relief, which allows for a 100% reduction in business rates payable for a set period of time while a property is empty: six months for industrial units and three months for other property types including retail units.

If MEES-related works will take longer than these set periods, the ratepayer can seek to reduce the property’s rateable value to a nominal figure of £1 for the duration of those works, pursuant to the Supreme Court decision in Newbigin (Valuation Officer) v SJ & J Monk. In that case, the court ascribed a nominal value to a property for the period in which it was undergoing redevelopment.

That case led to two further helpful decisions for ratepayers: the 2019 case of David Jackson (VO) v Canary Wharf Limited and, earlier this year, BNPPDS(J) Limited and BCI Limited v Amanda Hitchings (VO).

In David Jackson, the Upper Tribunal (Lands Chamber) held that the absence of a complete programme of works would not be fatal to the ratepayer in achieving the nominal value.

In BNPPDS, a warehouse undergoing significant remodelling to be used as a dark kitchen for McDonalds was considered eligible to receive empty property relief.

Beyond empty property relief and reductions for redevelopment, there are two other prevalent business rates mitigation strategies open to ratepayers who wish to minimise their business rates liability while preparing for MEES-related works.

Charity and intermittent lets

The first is the use of charity lets. Charities benefit from a mandatory 80% reduction in their business rates bills, with a further 20% discretionary relief dependent on the local rating authority. These reductions can make a property more viable for a charity than for a commercial business.

The second is the use of intermittent lettings. This involves short-term lets of 13 weeks or longer so that the empty premises rates relief is replenished. Short-term storage lettings were interspersed with claiming empty property relief successfully in the May 2025 decision in The Mayor and Commonality and Citizens of the City of London v 48th Street Holding Limited and Principled Offsite Logistics Limited. 

Osborne Clarke comment

Although there is no set timeline for changes to EPC minimum standards, it is clear that over the coming years legislation will be introduced to increase the thresholds. Both landlords and tenants need to be ready for these changes in the way that the leases are drafted and the works that landlords carry out so that the costs of the works can be borne fairly between parties and to minimise the scope for disputes.

When carrying out these works, or any development works, landlords should be seeking advice on costs mitigation strategies including the availability of rating relief but, with more development work being undertaken and local authorities continuing to experience budgetary pressures, it remains to be seen whether rating authorities will look to challenge the reliefs claimed.

A version of this Insight was previously published in the RICS Property Journal on 23 January.