Traditional UK high-street shop with upper floors, representing a mixed-use property investment

Illustrative image. This does not depict a specific Realty Packaging property.

For investors in UK commercial property, an Energy Performance Certificate (EPC) and the Minimum Energy Efficiency Standards (MEES) are connected but different systems.

An EPC is the certificate that rates a property’s energy efficiency. MEES are the legal rules that make certain EPC ratings necessary for letting.

For a shop-and-upper property, energy performance can affect:

  • Whether the property can be let
  • Rental demand and tenant choice
  • Capital expenditure
  • Valuation
  • Refinancing
  • Portfolio risk
  • Future development decisions

This article focuses mainly on England and Wales. It is educational information, not legal, surveying, tax or energy-compliance advice.

Summary of the main points

  • An EPC rates energy efficiency from A to G, with A being the highest rating.
  • A qualifying privately rented commercial property generally needs an EPC rating of E or above, unless a valid exemption is registered.
  • Since April 2018, landlords have generally been unable to grant a new tenancy for a commercial property rated F or G.
  • Since April 2023, the restriction has generally applied to existing commercial tenancies as well.
  • A shop and its residential or commercial upper parts usually require separate EPC checks.
  • Exemptions are available in some circumstances, but they must be registered and supported by evidence.
  • Energy improvements may improve lettability and value, but the payback depends on the building, lease, tenant, rent and holding period.
  • Investors should assess energy performance alongside lease terms, planning, building condition and operational compliance.
  • Do not rely on a future EPC target without checking current government guidance before purchase or refinancing.

What is an EPC?

An Energy Performance Certificate rates a building’s energy efficiency from A to G:

  • A: highest energy efficiency
  • G: lowest energy efficiency

An EPC is prepared by an accredited energy assessor. It normally includes:

  • The energy-efficiency rating
  • An environmental impact rating
  • Recommendations for improvement
  • Estimated costs or savings associated with recommended measures
  • The date of assessment and expiry date

An EPC is generally valid for 10 years. A new certificate may be required when a building is constructed, sold or let, subject to the relevant rules and exemptions.

You can check whether a certificate is recorded using the GOV.UK EPC register.

EPCs for shop-and-upper properties

A shop-and-upper property may contain several separately assessed areas. For example:

  • A commercial retail unit at ground-floor level
  • A flat above the shop
  • More than one residential flat
  • Commercial offices or storage space on the upper floors

The commercial shop and residential uppers usually need separate EPCs. Each certificate should be checked for its own rating, floor area, heating system and expiry date.

An EPC is not a building survey. It may not identify defects such as roof failure, damp, defective windows or unsafe electrical systems. Those matters require separate professional assessment.

Energy assessor reviewing building systems inside a mixed-use property

Illustrative image. Energy performance should be reviewed with the wider building condition.

What is MEES?

MEES refers to the Minimum Energy Efficiency Standards created under the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015.

For qualifying privately rented commercial property:

  • Since April 2018, a landlord has generally been unable to grant a new tenancy where the property has an EPC rating of F or G.
  • Since April 2023, the restriction has generally applied to existing tenancies as well.
  • A landlord must generally improve the property to EPC E or above, or register a valid exemption, before letting it.

The rules apply to qualifying properties. They do not apply in every situation, and some buildings may fall outside the EPC or MEES framework. This is one reason why the property, lease and proposed transaction should be reviewed together.

A breach can result in financial penalties and publication of the breach. It can also create a practical problem even where enforcement has not occurred. A property that cannot lawfully be let may produce no rent and may be harder to refinance or sell.

Why MEES matters to investors

Energy performance is now part of commercial property due diligence.

A property rated F or G may require work before a new lease can be granted. The cost may include:

  • Heating replacement or controls
  • Insulation
  • LED lighting
  • Improved glazing
  • Roof or wall measures
  • Hot-water system upgrades
  • Ventilation changes
  • Building management controls

The lease may also affect the ability to complete the work. A landlord may need access to a tenant’s premises, consent for alterations or approval from a superior landlord, mortgagee, planning authority or other third party.

The cost of the work may not sit with the party that benefits from lower energy use. For example, a tenant may pay the energy bills while the landlord funds the improvement. Lease wording, service charge provisions and alteration clauses therefore require careful review.

Banks and valuers may also consider energy performance as part of the asset’s risk profile. A weak rating does not automatically make an investment unsuitable. It does require a clear plan, cost allowance and assessment of the likely effect on income and value.

The shop-and-upper angle

The commercial and residential parts of a mixed-use building should be reviewed separately.

The shop

A poor commercial EPC may affect:

  • The ability to grant a new lease
  • A renewal or re-gearing strategy
  • Tenant demand
  • Fit-out decisions
  • Insurance and operating costs
  • The timing of refurbishment

Retail units often have large glazed shopfronts, open entrances, older lighting and variable heating arrangements. These features can influence the EPC result and the cost of improvement.

The upper parts

Residential uppers are subject to separate domestic private rented sector requirements. Commercial offices or storage areas may remain within the non-domestic MEES framework.

Check each unit rather than relying on one building-wide assumption. Also confirm whether the existing EPC reflects the current layout. A refurbishment, subdivision or Class MA conversion may change the energy position and create new assessment or compliance requirements.

Energy works must be coordinated with:

  • Fire separation
  • Ventilation
  • Escape routes
  • Damp and condensation control
  • Planning restrictions
  • Listed-building considerations
  • Electrical and heating safety

Improving insulation without considering ventilation or moisture can create additional building risks.

Future EPC standards

The current minimum standard for many qualifying rented commercial properties remains EPC E.

Government policy has previously indicated a direction of travel toward EPC B for new commercial lets by 2030. However, proposals and implementation dates can change. Current policy should be checked before relying on a future target in an investment appraisal.

As at the date of this article, investors should not assume that every small shop-and-upper property must meet a specific future EPC B deadline. Larger non-domestic buildings and properties affected by later policy changes may face different requirements.

The practical approach is to:

  1. Confirm the current legal requirement.
  2. Identify the property’s likely future exposure.
  3. Obtain a costed improvement plan.
  4. Test the effect on rent, value and exit timing.
  5. Review the position before refinancing or granting a new tenancy.

Costs, payback and capital allowances

Costs vary substantially according to the building’s condition, construction, services, access and use.

For illustration, a shop with an F rating may need lighting upgrades, heating controls and insulation to reach EPC E. A provisional budget of £15,000 to £40,000 could be used for initial modelling only. This is not a quote. The actual cost should come from a qualified assessor, contractor or building consultant after inspection.

The investment case should consider:

  • The work cost
  • Professional fees
  • Access and tenant-management costs
  • Lost trading or rental time
  • Planning and building-control requirements
  • Future maintenance
  • Expected energy savings
  • The remaining lease term
  • The holding period
  • The effect on rental demand and valuation

Some qualifying plant and machinery used in energy systems may attract capital allowances. Examples can include certain heating, lighting, controls and other fixed equipment. Building fabric, professional fees and installation costs require separate analysis. The availability and treatment of relief depend on the facts, ownership structure and tax position.

Limited company versus LLP

A limited company may allow profits to be retained within the company for portfolio growth. It can also provide a separate legal entity, subject to lender requirements, guarantees and company obligations.

An LLP is generally tax-transparent, with profits allocated to members and taxed according to their circumstances. It may provide a flexible partnership structure, but members should understand the agreement, funding obligations and liability position.

Neither structure is automatically better for an energy-led property strategy. Investors should consider corporation tax, income tax, capital gains tax, stamp taxes, VAT, finance costs, extraction of profits and succession planning with a qualified adviser.

Tax-advantaged property investment strategies may include correctly identifying qualifying capital allowances, using available energy-related reliefs where applicable, and selecting an ownership structure that supports the intended investment plan. These should be reviewed before exchange. Tax relief should not be used to justify an asset with weak lease or building fundamentals.

Building surveyor reviewing an EPC-style report during property due diligence

Illustrative image. An EPC review should support, not replace, a full commercial property assessment.

MEES and EPC compliance checklist

Before exchange, an investor should:

  • Obtain the current EPC for the shop.
  • Obtain an EPC for each separately let upper unit.
  • Confirm each rating and expiry date.
  • Check whether the property is within MEES.
  • Confirm whether an exemption is registered.
  • Review the exemption basis and expiry or review date.
  • Assess the cost and feasibility of reaching EPC E or a higher target.
  • Check heating, hot water, lighting, glazing, insulation and ventilation.
  • Review lease clauses on access, alterations and improvement works.
  • Confirm who pays for works and who owns any improvements.
  • Review planning, listed-building and building-control restrictions.
  • Obtain a building survey and energy assessment before exchange.
  • Budget for remediation and future upgrades.
  • Check lender requirements on EPC and energy performance.
  • Model the effect on rent, voids, value and refinancing.

Exemptions in summary

Exemptions are not a general permission to ignore an EPC rating. They must be registered on the PRS Exemptions Register, with the required evidence.

Possible grounds may include:

  • The cost of qualifying works exceeds the applicable seven-year cost cap or payback test.
  • All relevant improvements have been made but the property remains below the required rating.
  • A suitable independent installer cannot be found.
  • Wall insulation would damage the property or its fabric.
  • A tenant, superior landlord, lender, planning authority or other third party refuses consent.
  • The works would reduce the property’s value beyond the permitted threshold.
  • A temporary exemption applies in specific new-landlord circumstances.
  • The property is temporary or otherwise outside the relevant rules.

The duration depends on the exemption category and current regulations. Some exemptions are time-limited, and some must be renewed or reviewed. An exemption should be treated as a documented risk-control measure, not a permanent solution.

Realty Packaging’s Four Pillars

Realty Packaging reviews commercial property through four connected pillars:

  1. Lease : repairing obligations, access, alterations, consent, rent and term.
  2. Planning : lawful use, conversion potential and future works.
  3. Building condition : structure, roof, services, fabric and capital expenditure.
  4. Operational compliance : safety, energy performance, licensing and ongoing obligations.

Energy performance sits mainly within the building condition and operational compliance pillars. It also interacts directly with the lease pillar because the lease may control access, consent and cost recovery.

For investors seeking commercial property investment in the UK, high-yield commercial property or property portfolio growth in the UK, MEES and EPC should form part of the initial due diligence rather than a later compliance check. The same applies when assessing commercial property development projects involving conversion, refurbishment or mixed-use reconfiguration.

See Realty Packaging’s shop-and-upper investment approach and commercial property investment analysis.

Sources and further reading

Rules and guidance can change. Obtain current legal, surveying, energy and tax advice before relying on an EPC or MEES conclusion.

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