Commercial Landlord Energy: Recharging Tenants and Meeting MEES Standards
Commercial landlords in England and Wales must ensure their properties meet Minimum Energy Efficiency Standards before granting new leases or renewals, with the current minimum EPC rating set at E. How you recover energy costs from tenants depends on your lease structure, whether you supply energy directly or tenants contract with suppliers themselves. The regulations continue to evolve, with proposals to tighten standards further by 2030, so staying informed through official DESNZ guidance is essential.
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Understanding MEES for Non-Domestic Properties
The Minimum Energy Efficiency Standards Regulations 2015, as amended, set the legal baseline for energy performance in privately rented non-domestic buildings. Since April 2023, it has been unlawful to continue letting a commercial property with an EPC rating below E, covering both new lettings and existing tenancies.
The rules apply to properties in England and Wales that are let on a tenancy and legally required to have an Energy Performance Certificate. Scotland operates under a separate regime with different timescales and requirements.
The government has consulted on raising these standards. Proposals have suggested a minimum C rating by 2027 and B by 2030, though these dates and thresholds remain subject to confirmation. Landlords should treat any proposed timelines with caution and monitor announcements from DESNZ and updates to the Non-Domestic Private Rented Property Minimum Standard guidance on GOV.UK for confirmed implementation dates.
The direction of travel is clear: buildings will need to become progressively more energy efficient. Landlords who begin planning upgrades now may find the transition less disruptive than those who wait for deadlines to arrive.
Commissioning a Commercial EPC
A commercial EPC must be produced by an accredited non-domestic energy assessor. The assessment differs from residential EPCs and typically takes longer, particularly for larger or more complex buildings.
To commission an assessment, you can search the approved register of non-domestic energy assessors through the official EPC register. The assessor will need access to the property and information about its construction, heating systems, lighting, ventilation and any renewable energy installations.
The resulting certificate rates the property from A to G and includes recommendations for improving energy efficiency. An EPC remains valid for ten years, though you may need to commission a new one following substantial works that alter the building's energy performance.
Costs vary depending on property size and complexity. For multi-let buildings with shared services, the assessment can become more involved. Assessors may need floor plans, service charge information and details of any tenant fit-out that affects energy use.
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Certain commercial properties fall outside MEES requirements. Buildings that do not require an EPC are exempt, including listed buildings where compliance would unacceptably alter their character, places of worship, temporary structures used for less than two years, and some industrial sites.
Where a property does require an EPC but the landlord cannot meet the minimum standard, five exemption categories may apply:
- All relevant improvements have been made but the property still falls below the minimum rating
- Wall insulation would negatively affect the building's structure or fabric
- Required improvements would reduce the property's market value by more than a set percentage
- Consent from a third party, such as a superior landlord, tenant or planning authority, cannot be obtained despite reasonable efforts
- A newly registered landlord has recently become responsible for the property
Landlords claiming an exemption must register it on the PRS Exemptions Register, maintained by the Department for Levelling Up, Housing and Communities. Exemptions last for five years, after which they must be reassessed. Simply registering an exemption does not mean it will go unchallenged, and local authority enforcement officers may request evidence.
Recharging Energy Costs to Tenants
How energy costs flow between landlord and tenant depends on the lease structure and metering arrangements.
Direct tenant supply: In many commercial lettings, the tenant contracts directly with an energy supplier and pays their own bills. The landlord's role is limited to ensuring the property meets MEES standards and that metering arrangements are in place at the start of the tenancy.
Landlord supply with sub-metering: In multi-let buildings, the landlord may hold the supply contract and recover costs from individual tenants through sub-meters. Where you resell energy to tenants, you become a reseller and must comply with Ofgem's guidance on maximum resale prices. You cannot charge tenants more than you pay yourself, including standing charges, and must provide consumption information on request. The Energy Ombudsman can hear complaints from business consumers about energy resale disputes.
Service charge recovery: Landlords of multi-occupied buildings commonly recover shared energy costs, such as heating and lighting of common areas, through the service charge. The lease will set out what costs are recoverable and how they are apportioned. Tenants may challenge unreasonable charges, so maintaining clear records and following any contractual consultation requirements is advisable.
Full repairing and insuring leases: Under an FRI lease, the tenant takes responsibility for maintaining and repairing the property throughout the term. This can include keeping building services in good order but does not automatically transfer MEES compliance obligations to the tenant. The landlord remains responsible for ensuring the property can be lawfully let.
Schedule of dilapidations: At lease end, landlords may serve a schedule of dilapidations claiming for breaches of repair and reinstatement covenants. Energy related matters can arise where tenants have removed or damaged insulation, altered heating systems without consent, or failed to maintain equipment affecting the EPC rating. Any claim must be grounded in the lease terms and the actual condition of the property.
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Penalties for Non-Compliance
Local weights and measures authorities enforce MEES in England and Wales. Penalties for letting a sub-standard property or failing to register a valid exemption are calculated based on the rateable value of the property and the duration of the breach.
Fines can be substantial for prolonged non-compliance. The specific penalty bands and calculation methods are set out in the Non-Domestic Private Rented Property Minimum Standard guidance on GOV.UK. Landlords should consult this guidance for current figures rather than relying on outdated information.
Beyond financial penalties, non-compliance creates legal risk. A lease granted in breach of MEES may still be binding, but the landlord faces enforcement action and reputational consequences. Some tenants, particularly larger corporate occupiers, now conduct energy due diligence before signing leases and may refuse to take space in non-compliant buildings.
Planning Ahead for Tighter Standards
With standards expected to tighten, landlords should consider their building stock and identify properties at risk of falling below future thresholds. The recommendations section of existing EPCs provides a starting point for improvement works.
Common upgrades include LED lighting, improved heating controls, better insulation where feasible, and installation of renewable energy systems. Costs vary widely, and not all measures will be appropriate for every building. Listed buildings and those with unusual construction may face particular challenges.
Where tenants have fitting out obligations, lease provisions dealing with energy performance at handback may become more common. Landlords negotiating new leases might consider including covenants requiring tenants to maintain or improve the EPC rating during the term.
Funding support may be available for certain improvements. The government periodically announces schemes aimed at improving commercial building energy efficiency, and these are publicised through DESNZ and relevant trade bodies.
FAQ
Does MEES apply to all commercial leases?
MEES applies to non-domestic properties in England and Wales that are legally required to have an EPC and are let on a tenancy. Certain buildings are exempt, including listed buildings where compliance would alter their character and properties not normally requiring an EPC.
Can I pass MEES upgrade costs to my tenant?
This depends on your lease terms. Some leases allow landlords to recover improvement costs through the service charge, while others do not. Review your lease carefully and take legal advice if the position is unclear.
What happens if I cannot improve my property to the required standard?
You may be able to register an exemption on the PRS Exemptions Register if you meet one of the qualifying criteria. Exemptions last five years and require evidence. Continuing to let without a valid exemption risks enforcement action and financial penalties.
Where can I find the current penalty levels for MEES breaches?
Penalty calculations are set out in the Non-Domestic Private Rented Property Minimum Standard guidance published on GOV.UK. Check this source for up to date figures as they may change over time.
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