Min APC B rating for large commercial properties
The department for Energy Security and Net Zero (DESNZ) has signalled a decisive shift in the UK’s net-zero landscape by mandating an EPC rating of B or higher for commercial buildings over 1,000 square metres from 2031.
If legislated, the policy will trigger profound effects which will shape asset valuations, lease structures, whilst also affecting landlords and tenants which will completely reshape and redefine the entire UK real estate sector.
At KTS Legal, we are monitoring these developments and advising clients accordingly on how these legislations may affect their property interests.
What Is an EPC Rating
An EPC (Energy Performance Certificate) rating is defined by the government as how energy efficient a building is using grades from A to G (A is most efficient). For Commercial properties, this rating acts as a determination of whether a property can legally be let, sold. From 2031, It will serve as the defining regulatory factor for larger commercial properties as the UK intensifies its trajectory toward the 2050 legally binding Net Zero target.
However, commercial properties under 1,000 square metres will continue to be exempt from the new EPC B target and instead remain subject to the Current EPC E minimum.
How does this affect Leaseholders?
While lower energy costs and an increase in property attraction benefit leaseholders on a daily basis, they must remain cautious of freeholders attempting to pass deep retrofit costs down to them through building maintenance fees.
Energy efficiency determining Property Value
High-graded EPC commercial properties could become increasingly valuable due to the cheaper offerings of energy bills. Whilst it incentivises energy efficiency with higher market value prices due to the inability of needing to retrofit, it could also leave poorly rated properties completely stranded, causing their value to drop as buyers run away from the massive hidden costs of upgrading them.
EPC targets meet ground rents restrictions
The interaction between stricter energy efficiency requirements and proposed ground rent reform, including the potential £250 cap, could create both risks and opportunities for leaseholders, particularly where landlords seek to recover retrofit costs through service charges or management fees.
As ground rent income becomes more restricted, some freeholders may seek to rely more heavily on other recoverable charges. Leaseholders should therefore be more inclined to review any proposed increases in service charges, management fees or contractor costs carefully, particularly where these are presented as necessary energy-efficiency or sustainability upgrades.
What Happens Next?
As the UK continues to move towards its Net Zero 2050 target, EPC regulations are likely to remain a key focus of property regulation. The EPC B requirement for large commercial properties will create the necessity for Landlords, tenants and property owners to plan early for compliance, cost allocation and potential lease implication.
However, commercial properties under 1,000 square metres will continue to remain exempt from the strict EPC B mandate, potentially changing the landscape as the market may shift towards an incentive of smaller commercial properties to perhaps upgrade voluntarily, rather the forcefully.
About the KTS Legal Property Team
The property team at KTS Legal advises clients across England and Wales on a wide range of residential and commercial property matters. Our work includes:
- leasehold and freehold property transactions
- advice on leasehold reform and enfranchisement
- property investment and residential portfolios
- landlord and tenant matters
- property disputes and title issues
Our solicitors regularly work with landlords, leaseholders, investors and developers, helping them navigate complex property issues in a practical and commercially focused way.
If you would like advice about leasehold reform, ground rent issues or residential property investments, our team will be happy to assist.