Business Insights | What the Government's MEES Update Means for Commercial Landlords

In England and Wales, Minimum Energy Efficiency Standards set the legal floor for energy performance in privately rented commercial buildings. Energy Performance Certificates (EPCs) rate buildings from A+ (most efficient) to G (least). Since 1 April 2018 it has been unlawful to grant a new or renewed lease of a commercial property rated below E, and from 1 April 2023 that prohibition was extended to continue to let existing tenancies without a valid exemption. Local authorities enforce the rules, can issue penalties of up to £150,000 per breach, and can publish details of breaches on the PRS Exemptions Register.

For several years, the question was not whether that EPC E floor would rise, but when, how far, and with what flexibility. The 2020 Energy White Paper proposed EPC B by 2030, followed by a consultation in 2021. CBRE's analysis at the time found that historic improvement trends would leave a significant proportion of commercial stock short of the target by the proposed deadline. The policy sat in limbo while the market kept moving. The June 2026 interim response has given some clarity.

The target: EPC B, but with a size threshold

From 2031, privately rented commercial buildings above 1,000 square metres (m²) within scope of the policy will need to achieve a minimum EPC rating of B, where cost-effective and subject to exemptions. Buildings below that threshold will remain subject to the existing EPC E minimum.

This size-based split creates two distinct categories of asset, with materially different compliance obligations, cost profiles, and ultimately, valuations.

What reaching EPC B requires

Reaching EPC B typically means efficiency across the fabric and insulation, lighting, and the heating, cooling, and ventilation systems, supported by good controls. Because the rating is carbon-based, no single measure guarantees B; it is the combined performance of the building and its services that counts. For complex buildings, a more detailed Dynamic Simulation Model can produce a more accurate, and often better, rating than a simpler assessment, so commissioning the right EPC can improve a rating before any capital measures are undertaken.

EPC B is not a definitive ban on gas. An efficient gas system, such as a modern condensing boiler serving fan-coil units in an office, can still reach B where the rest of the building performs well enough to offset it. But with the carbon factor of grid electricity now close to parity with gas and forecast to fall further against the 2030s zero-carbon grid target, gas-dependent assets score progressively worse. For many buildings, and those on direct-fired gas heaters in particular, electrification becomes the practical route to B rather than a legal requirement.

Within the interim update, the Government estimates the measure will save tenants in larger buildings up to £360 million a year by 2031, framing it as a bills and energy-security measure as much as a decarbonisation one.

The 2027 interim milestone: dropped

The original consultation proposed an interim requirement to reach EPC C by 2027 before moving to B by 2030. That milestone has been formally abandoned. For larger buildings, the compliance path is now a single step: E today, B by 2031.

The deadline: extended, but not by much

The original 2030 target has moved to 2031. For landlords who have already begun upgrading portfolios, this provides modest additional runway. For those who haven’t, the difference of one year is unlikely to be decisive. The more important signal is the firmness of the commitment: unlike previous iterations of this policy, the 2031 date is presented as settled.

Exemptions: retained, but details pending

The existing framework of cost-effectiveness exemptions, built around a seven-year payback test, will remain in place. This means landlords will not be required to carry out improvements where their cost cannot be recovered through energy savings within that period.

Alongside the seven-year payback test, exemptions also apply where necessary third-party or tenant consent cannot be obtained, where works would reduce the property's value by more than 5%, and where all relevant improvements have already been made. Exemptions must be registered and most last five years. They do not pass to a new owner on sale or transfer, and an exemption based on a tenant withholding consent ends when that tenancy ends.

The interim response does not address several points raised in the earlier consultations, which remain unresolved: whether enforcement penalties will rise from the current £150,000 cap, whether shell and core-let buildings will receive a six-month exemption, and whether tenants will face statutory duties not to undermine a property's EPC rating.

CBRE expects further guidance on these points before the secondary legislation is introduced.

Those who followed the original consultation closely will note several shifts.

The EPC B target is confirmed, but the size threshold is new. No previous version of the policy distinguished between large and small buildings in this way. The practical effect is that sub-1,000m² assets, which make up a significant proportion of UK commercial stock by number, are carved out of the B standard for now, with no set deadline to go further.

The 2030 deadline has been replaced by 2031. This is consistent with what we anticipated. In our June 2025 analysis, CBRE assessed the evidence as pointing to a deadline "after 2030 but before 2035", and stated that the previous Government had privately acknowledged that 2030 would require updating to allow sufficient lead time.

The C-by-2027 interim requirement is gone entirely. This simplifies compliance planning for larger landlords but also removes a forcing mechanism that would have driven earlier action.

One of the most important things to understand about the current position is that the market repriced for MEES compliance long before the Government confirmed its direction. Institutional investors, some debt providers, and major occupiers have increasingly reflected minimum EPC standards in acquisition criteria, financing terms, and lease negotiations, though practice varies considerably between lenders. Assets rated D or below can face a narrower pool of willing lenders, longer void periods, and growing exit risk. Many institutional investors also assess assets against EU frameworks such as the EU Taxonomy and SFDR, which reference energy performance, so the pressure is not only domestic.

The compliance gap in Central London office stock is material and well-documented. Assets rated below B are already being discounted by buyers and lenders, independent of any regulatory deadline – the market has moved ahead of the legislation.

Audit your portfolio against the 1,000 m² threshold

The size threshold is the first filter. Identify which assets fall above and below 1,000 m² and segment your EPC exposure accordingly. For assets above the threshold, understand where each sits today: A or B requires no action; C or D requires a plan; E may appear compliant today but will require upgrading before 2031. For assets below the threshold, the regulatory pressure has eased, but market pressure has not. For single-let assets this is straightforward. For multi-let assets it is not yet settled whether the 1,000 m² test applies to the whole building or to each separately let unit, which materially affects how much of a multi-let portfolio falls in scope.

Do not assume your EPC data is current or accurate

EPC methodology changed in 2022, and many EPCs were issued under the old calculation framework. In some cases, commissioning a new assessment under updated methodology can deliver an improved rating without capital expenditure. Before scheduling retrofit works, verify that existing certificates reflect current methodology. Acting on outdated data is a common and avoidable mistake.

Build retrofit into your asset management cycle now

A 2031 deadline with legislation still to be passed may feel distant. It is not. Procurement lead times for energy consultants, contractors, and specialist equipment have been lengthening as more landlords move from planning to delivery. Aligning retrofit programmes with lease events, planned maintenance cycles, or tenant changes remains the most cost-effective route. Landlords who delay until 2029 or 2030 will face a congested market, higher costs, and less choice.

Understand which exemptions may apply to your assets

The seven-year payback test is the primary route to exemption, but applying for and registering an exemption requires evidence. Properties with specific structural constraints and assets where tenants prevent access can be legitimate candidates. Heritage is less certain: the Government has indicated it intends to revisit the current heritage exemption, so it should not be relied on as a settled route. The process takes time and should be started well in advance of any compliance deadline.

Revisit green lease clauses

With tenant obligations still an open question in the Government's interim response, lease events between now and secondary legislation carry real uncertainty. Green lease clauses, EPC-related repair obligations, and landlord access rights for improvement works are all negotiating points that deserve closer attention than they typically receive at heads of terms stage.

The decision to exclude sub-1,000 m² buildings from the B standard is significant, and not entirely straightforward.

On one hand, it removes a substantial regulatory burden from smaller landlords, many of whom own buildings in older stock where reaching B would be either technically difficult or economically marginal.

On the other hand, the market dynamic is not governed by legislation alone. Occupiers and investors in the sub-1,000 m² segment are not immune from sustainability requirements. Corporate tenants with their own net zero commitments increasingly specify minimum EPC requirements in their search criteria, independent of what the law requires. A sub-1,000 m² asset rated D or E may be legally lettable beyond 2031, but it may not be commercially competitive.

CBRE's view is that the regulatory carve-out should be treated as a floor, not a ceiling. The same logic applies to the metric itself. The Government has acknowledged that in large, complex buildings there is almost no correlation between an EPC score and actual energy performance, and it has consulted on introducing an operational performance rating for buildings of this size.

The Government has described its June 2026 response as interim. Four material issues remain outstanding, and each has practical implications.

Enforcement

Whether the current penalty cap of £150,000 will be increased, and whether regulators will receive additional powers. A higher penalty ceiling would change the risk calculus for landlords weighing the cost of compliance against the cost of non-compliance.

Tenant obligations

Whether occupiers will face statutory duties not to undermine a building's EPC rating, and a corresponding duty of co-operation with landlords. This would represent a significant change to how green lease obligations currently work and would affect negotiations at every lease event.

Shell and core lettings

Whether a six-month exemption will apply to shell and core-let buildings, where fit-out is the tenant's responsibility and the base EPC may not reflect eventual operational performance.

The definition of 'building'

The response requires EPC B for buildings larger than 1,000 m² but does not define 'building' or confirm that the existing EPB Regulations definition applies. For single-let assets the test is clear. For multi-let assets, whether it applies per separately let unit or to the whole building is undecided, and the difference determines whether large parts of multi-let retail and office portfolios are in scope at all. The equivalent Scottish rule has been applied at unit level and has been seen to be exploited in this way.

CBRE will continue to track these issues and update clients as guidance is confirmed.

Running alongside MEES is a separate reform of the EPC regime. The Government's partial response in March 2026 confirmed that the single carbon-based rating stays as the headline metric for commercial EPCs and that EPCs keep their 10-year validity, but that an EPC will be required at the point of marketing rather than only at sale or letting, and that heritage buildings will be required to have an EPC, removing today's conditional exemption, under which many already need one. The Government is also considering whether a new EPC should be required mid-tenancy when an existing one expires, which would turn today's voluntary re-assessment into an obligation.

The June 2026 announcement is a policy decision, but it lands across asset management, valuation, financing and leasing at once, and is increasingly surfacing in dilapidations and service-charge disputes.

The valuation gap between compliant and non-compliant assets is already visible and will likely widen, so compliance costs should be modelled into acquisitions now and EPC trajectory considered on disposals. On debt, an increasing number of lenders are factoring minimum EPC requirements into credit appetite and in some cases, loan documentation, so a sub-B asset without a credible compliance plan may find refinancing options narrower.

Across all of this, the time to act is before the rules are locked, not after.