Commercial landlords and the environment: what you need to know

There is the famous goal of net zero emissions by 2050 – this is something that everyone will have to pitch in on if it’s to be achieved, and commercial landlords are definitely required to make a contribution. Keeping a close eye on relevant regulations is a massive part of this. Rules are tightening, and it’s necessary to focus on the long-term goal by making changes today. 

The Minimum Energy Efficiency Standards (MEES) regulations, introduced in 2018, place legal requirements on the energy performance of commercial buildings, especially with regard to Energy Performance Certificates (EPCs). The UK government is also consulting on new policies like mandatory on-site renewable energy generation and more regular energy reporting. Landlords that fail to make necessary upgrades risk hefty penalties under these regulations.

Sustainable buildings have an advantage

However, compliance is not just about avoiding penalties. Energy-efficient, eco-friendly buildings and eco-friendly community-housing projects are increasingly attractive to tenants and councils as sustainability becomes more of a priority. They can also achieve higher rent rates compared to inefficient buildings. Improving environmental performance also benefits landlords through lower operating costs, higher asset values, and a competitive advantage.

In this article, we’ll take a look at what commercial landlords need to know about compliance with rules relating to the environment. 

Understanding relevant environmental regulations

Current regulations like the MEES place legal minimum standards on the energy performance of commercial buildings based on their EPC ratings. Since 2018, commercial properties have been unable to grant new leases if their EPC rating is below an E. These rules are tightening, with plans to require a minimum EPC of C for all commercial properties by 2030.

More recent changes also require commercial buildings to undergo mandatory energy audits every four years to determine ways they can improve energy efficiency. The government is consulting on additional policies to move the UK towards its net zero emissions goal. This could include tighter minimum EPC standards, requiring on-site renewable energy generation like solar panels for new or retrofitted buildings, and more stringent carbon reporting requirements.

Regulatory compliance

The trajectory of UK environmental policy points clearly towards higher standards for commercial properties. Landlords must prepare for buildings to require higher EPC and lower carbon ratings, and to meet energy performance standards comparable to new, eco-friendly developments. To comply with present and future regulations, commercial landlords should conduct energy audits, invest in building retrofits like improved insulation, upgrade to energy-efficient lighting and heating systems, and consider on-site renewable energy sources. Taking action now will help future-proof property portfolios and avoid penalties for non-compliance down the line.

Why should landlords care?

Improving energy efficiency through upgrades like insulation, LED lighting or solar panels also benefits landlords financially through reduced operating costs. Lower energy demand helps stabilise utility costs against future price rises.

Over the long run, sustainability and energy efficiency maximise the value of commercial property assets. Green, future-proofed buildings hold their value well and continue attracting high-quality tenants. With regulations shifting to require net zero carbon buildings, energy efficiency, and sustainability will only become more significant in valuing commercial properties.

Landlords that make progress on these measures now, while available incentives and financing support them, stand to gain the most both in terms of compliance and asset performance for a sustainable income stream. Overall, addressing environmental performance is not simply a compliance issue for commercial landlords but rather a matter of reputation, costs, tenant retention, future marketability, and securing the best returns on investments.

What landlords can do

There are several steps commercial landlords can take to improve the environmental sustainability of their buildings and comply with regulations:

  • Conducting professional energy audits to determine the best ways to reduce carbon emissions and utility usage for each building. Energy audits consider factors like insulation, heating systems, lighting, and opportunities for renewable energy.
  • Investing in building retrofits such as improved insulation, LED lighting, double-glazed windows or solar panels. Retrofitting existing buildings is one of the most impactful actions landlords can take. Available grants and financing make retrofits even more viable.
  • Exploring renewable energy sources such as solar panels to meet some of the building’s energy needs. Solar and other renewable technologies are more affordable and efficient than ever.
  • Choosing highly energy-efficient equipment and fixtures when upgrading or replacing systems like boilers, air conditioning units, lighting, etc. More efficient appliances reduce emissions and lower utility bills.
  • Educating commercial tenants about sustainability best practices they can implement. When tenants also work to reduce energy usage, it leads to better environmental outcomes and lower costs for both parties.
  • Taking advantage of incentives like the Green Gas Support Scheme or reducing VAT on energy-efficient materials. Interest-free loans and tax rebates are also available for financing retrofits and renewable technology. Local grant programmes provide additional funding for some sustainability projects.

Future-proof assets to stay competitive

Making improvements to maximise energy efficiency and transition to renewables will enable commercial landlords to avoid costly penalties, comply with current and future regulations and establish their position as an environmentally responsible business partner and a successful property investor

With the range of funding and financing options now available, the business case for “greening” commercial buildings has never been stronger. Landlords who invest in sustainability can raise the value and appeal of their properties while also achieving cost savings and energy security.

Acting now could be advantageous

Overall, now is the time for commercial landlords to act to future-proof their assets and gain a competitive advantage. A proactive approach to environmental performance is vital to optimising returns and minimising risks.

The commercial property market must do its part by upgrading existing buildings and ensuring new developments are as eco-friendly as possible. For many landlords, this will mean conducting energy audits, investing in retrofits and renewable energy, choosing energy-efficient equipment, and taking advantage of available incentives and financing.

Although regulatory compliance is mandatory, the business case for sustainability is equally compelling. Commercial properties with strong environmental credentials are well-positioned to thrive as eco-conscious tenants and investors increasingly shape the market. Landlords who make progress towards net zero carbon and energy-efficient buildings today will gain a key competitive advantage.

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