Minimum Energy Efficiency Standards: Anticipating changes in NI and exploring available tax relief for landlords

Recent research published by CBRE NI indicated that 75% of Belfast office stock may be obsolete by 2030 if energy efficiency legislation already in place in England and Wales is implemented in a similar manner in Northern Ireland.

MEES in England and Wales

Minimum Energy Efficiency Standards (MEES) were introduced for commercial property in England and Wales in 2018. The MEES Regulations initially required a minimum Energy Performance Certificate rating of E prior to the grant of any new tenancy. From 1 April 2023, it has been unlawful for landlords to continue to let a commercial property with an EPC energy rating of F or G, unless a specific exemption applies.

MEES and Northern Ireland

The Climate Change Act (Northern Ireland) 2022 received Royal Assent on 6 June 2022, with its purpose being to begin to bring Northern Ireland into line with other parts of the UK. As the Assembly returns to Stormont, we can confidently assume that, with a target of net zero by 2050, more legislative change and environmental and sustainability policies will follow. It is difficult at this stage to know the extent to which the minimum energy efficiency requirements in England and Wales will be implemented in Northern Ireland and the timescales for improvement. But, it will inevitably come with associated costs for landlords to implement improvements in order to bring their premises to an acceptable standard. This could include works such as upgrading insulation, and heating systems, installing LED lighting and replacing windows.

In anticipation of the inevitable implementation of legislation, landlords need to put sustainability at the top of their agenda.

Next steps

Landlords should consider reviewing the state and condition of their individual premises or portfolio and creating a schedule and timetable for improvements. There will be capital expenditure but their tenant’s Environmental Social and Governance (ESG) commitments will mean that they will have their own sustainability strategies and policies to adhere to and the building they occupy can be an effective tool to achieving their wider ESG objectives. This in turn could lead to increased rental revenue for landlord’s willing to commit the initial financial outlay.

In order for MEES and wider ESG objectives to be met, the lease is a key resource and landlords should be reviewing their lease terms, particularly where leases are coming up for renewal. Landlords should be aiming to put in place a green lease strategy and agreeing lease terms. This should include provisions around energy performance, improvement and cooperation between the landlord and the tenant to allow for the creation and evolution of sustainability policies and sharing of energy performance information.

Capital allowances represent generous tax savings which should be used to minimise tax liabilities when considering the capital costs required to bring a premises up to an acceptable standard. Works including but not limited to upgrading insulations, and heating systems, installing LED lighting all qualify for capital allowances. Tax savings are available at the property owner’s effective tax rate, i.e. 25% for Corporation Tax, therefore, for every one pound spent on improvements, 25 pence could be available as tax relief.