As 2022 gets under way, the UK is another year closer towards the government’s target of achieving net zero by 2050.
It is well known that the built environment contributes to a substantial proportion of emissions in the UK, where buildings are considered to be the second-largest source of emissions after transport. Given this significant impact, it is no surprise that the government is introducing measures to limit the emissions from the built environment.
While these are welcome changes in our drive to achieve net zero, they will have some practical implications for building owners. In this article, we consider what is on the horizon for sustainability and what building owners need to do to prepare for these changes.
Minimum Energy Efficiency Standards: tighter control of the environmental performance of buildings
Since 2018 there has been a requirement for a property to achieve an EPC rating of E before a new tenancy can be granted. From 1 April 2023, a landlord cannot continue to let a non-domestic property (whether or not a new tenancy is being granted) with a rating below E unless it has a valid exemption.
The government has also set a regulatory target for all non-domestic rented buildings to meet a B rating by 2030 (subject to some exemptions). It is expected that under these proposals around one million non-domestic buildings will need to be improved by this date.
More recently, the government has consulted on an interim milestone of EPC rating C by 2027 to avoid building owners delaying action until closer to the 2030 deadline. We are awaiting an update from the government following this consultation, but it seems likely that it will go ahead.
There will be significant benefits for the UK’s sustainability agenda from these proposals, especially when considered in the context of other proposals put forward by the government. Despite these benefits, building owners will no doubt be concerned about implementing these changes and managing the investment associated with them.
To stay ahead of these changes, building owners should be:
• reviewing their existing portfolios to identify where works will need to be carried out and checking the relevant lease provisions. Many leases or renewal leases that are being granted now will still be in place by 2030, and we would expect demand for suitable contractors to grow as we get closer to these dates;
• ensuring that their tenants’ fit-out applications and approved alterations will be MEES-compliant;
• evaluating the environmental performance of prospective investments and factoring in any cost implications for upgrading non-compliant buildings; and
• obtaining the highest EPC rating possible for each milestone to avoid carrying out further works down the line.
Electric vehicle charge points
Domestic transport is considered to be the largest source of UK greenhouse gas emissions of any sector across the economy. During the past few years, the government has focused much of its attention on decarbonising transport. One of its highest-profile targets at a domestic level will be ending the sale of new petrol and diesel cars and vans by 2030.
This is an ambitious target but, as many electric vehicle drivers have found, even today there are not enough EV charge points set up across the UK to meet current demand. This year, we expect changes to the building regulations to require EV charge points in certain developments, and developers will need to be familiar with these changes.
According to the government’s consultation, the new regulations will, subject to certain exceptions, result in the minimum requirements set out in the table below.
As the importance of suitable charge points will increase as we approach the 2030 target, we see three priorities for developers:
1. Ensure that developments can accommodate the charge points, and facilitate future growth in this area and consider any necessary upgrades to the network (which may need to be paid for by the developer);
2. Engage the local district network operators as early as possible to streamline the commissioning process for new points and, crucially, to avoid a lag between completion of the build and availability of the power, which may impact on value; and
3. Consider business models and partnerships carefully and how these will impact on the operational costs to the development and its occupants.
Performance-based ratings for large commercial and industrial buildings
Given the increased focus on EPC ratings, it may come as a surprise that in certain buildings, especially large and complex ones, there is almost no correlation between a building’s EPC score and its actual energy and carbon performance.
There are already many different methodologies in use to measure the actual environmental performance of a real estate portfolio.
The government is seeking to formalise this, with a new scheme to rate commercial and industrial buildings based on actual energy consumption and carbon emissions. The intention is to base this scheme on the National Australian Built Environment Rating Scheme (more commonly known as NABERS), which has been well received in the UK. The government consultation on this proposal closed last year, but the aim is to launch the first phase by 2022/23.
Initially, the scheme will be targeted at commercial and industrial buildings larger than 1,000 sq m. In England and Wales, this will impact only 7% of commercial and industrial buildings. Yet these buildings contribute to more than 53% of all energy used by commercial and industrial buildings, and associated carbon emissions. Phase one of the scheme will target offices, with all other commercial and industrial sectors being targeted in phases two and three.
While we await further information about the proposed scheme and timeframes, we are expecting the scheme to require annual ratings and mandatory public disclosures as a minimum.
This scheme is a sign that the government intends building owners to face increasing public scrutiny as it drives towards net zero. Building owners should assess their existing and upcoming real estate to identify buildings that will fall within this category and how to introduce low-carbon technologies.
Moving away from traditional energy solutions
As the emphasis grows on building owners to decarbonise, companies are responding with new technologies which could provide alternative solutions for buildings in the future. The government has identified four key green technologies and energy carriers to reduce the carbon in our energy network: electricity; hydrogen; biomass; and carbon capture, usage and storage.
While some of these are at the early stages of investigation – for example, the government is planning a village-scale hydrogen heating trial by 2025 – building owners could begin to incorporate alternatives (such as heat pumps) to traditional energy solutions into their developments.
Outside policy considerations, the use of different technologies is becoming increasingly important to the real estate industry as part of the ESG agenda. Many companies are beginning to select buildings which are more energy efficient as part of their branding message to the customers they serve.
Plan early
While energy policy is a complex and fast-moving area, we expect many of the changes discussed to be mandated through legislation in the coming years.
Building owners and occupiers should start planning early to avoid the cost and disruption of last-minute changes across their portfolios, thereby limiting the commercial impact on their investments.
It is evident that energy efficiency in the built environment will have a material impact on our journey towards net zero as a society. Energy efficiency and ESG are increasingly key differentiators in the market, contributing to the wider societal goals associated with net zero and helping those that get it right to succeed in the market.
An earlier version of this article appeared in Estates Gazette on 14 March 2022.
