As the world faces the pressing challenges of climate change, governments and businesses alike are actively seeking ways to mitigate their environmental impact. In recent years, the concept of achieving Net Zero has gained significant momentum. With the aim of reducing greenhouse gas emissions to net zero by 2050, the transition to a low-carbon economy is transforming various sectors, including the healthcare sector.
The UK government’s Net Zero strategy has triggered a renewed focus on the energy efficiency of non-domestic properties. Landlords, investors and operators are increasingly considering and investing in measures to improve the energy performance of their property estate. This includes upgrading insulation, implementing energy-efficient lighting and heating systems, and integrating technologies for optimal energy management. By reducing energy consumption and carbon emissions, these measures help align healthcare properties with the Net Zero objectives while also resulting in long-term cost savings.
Property owners and operators are now compelled to invest in sustainable technologies and practices to align with the evolving regulations and to ensure compliance of the same. The most influential of these regulations are the EPC (Energy Performance Certificate) and MEES (Minimum Energy Efficiency Standards) regulations.
Minimum Energy Efficiency Standards (MEES) regulations
The Minimum Energy Efficiency Standards (MEES) regulations have had a significant impact on property generally in the UK. These regulations were introduced to improve energy efficiency and reduce greenhouse gas emissions in the property sector.
Some key impacts of MEES:
- The regulations apply to non-domestic properties in England and Wales, such as care homes, hospitals, supported living accommodation, offices, clinics and pharmacies;
- Energy Performance Certificate (EPC) compliance: An EPC rates the energy efficiency of a building on a scale from A to G, A being the best rating you can have. MEES regulations stipulate that non domestic properties must meet a minimum energy efficiency rating of "E" on their EPCs to be leased or sold. This requirement has prompted property owners and landlords to assess and upgrade the energy performance of their buildings. Non-compliant properties cannot be legally let to new tenants or have leases renewed, affecting their marketability and rental income potential;
The requirement that a property must have a minimum EPC rating of E in order to be let or a lease renewal granted has applied since 1 April 2018.
Since 1 April 2023 it now applies to all privately rented properties where a lease is in place (even where there has been no change in tenancy). This means that if a healthcare operator is a tenant itself or if it has granted a tenancy of whole or part of a building for instance to a café, retailer or pharmacy then the requirement will bite and landlord needs to review their property portfolios to check whether each let property has an EPC with a minimum E rating and obtain one if not (unless an exemption is registered). If the EPC has an F or G rating then they will need to either carry out works (subject to obtaining any third party consents) so that an E rating is achieved or register an exemption.
- MEES regulations have incentivised property owners to invest in energy efficiency upgrades and retrofitting measures to improve their buildings' EPC ratings. These improvements not only enhance compliance but also lead to long-term energy savings and reduced operational costs for property owners;
- Financial Implications: Non-compliance with MEES regulations can result in financial penalties or the publication of non-compliance details. The maximum penalty for letting a non-compliant property can reach up to £150,000. Additionally, lenders and investors may consider a property's energy efficiency rating when assessing its value and investment potential. Therefore, properties with poor EPC ratings may face challenges in securing financing or attracting investors;
- Marketability and Tenant Demand: MEES regulations have influenced tenant preferences and market demand. Energy-efficient buildings with higher EPC ratings are generally more attractive to buyers and tenants seeking cost-effective, environmentally-friendly spaces. Such properties offer reduced energy bills and contribute to the tenants' sustainability goals. As a result, landlords who invest in energy efficiency improvements can position their properties as desirable choices and potentially command higher rental rates;
- Property Valuation: MEES regulations have the potential to impact property valuations. Properties with higher energy efficiency ratings and compliance with MEES regulations may be considered more valuable due to their reduced operational costs and increased market demand. Conversely, non-compliant properties with low EPC ratings may experience devaluation or difficulty in attracting buyers or investors. Valuation professionals are increasingly considering energy efficiency and compliance with MEES when assessing property values;
- Long-term Sustainability: MEES regulations contribute to the UK's broader sustainability objectives by encouraging energy-efficient practices in the property sector. By improving the energy performance of buildings, reducing carbon emissions, and promoting sustainable practices, these regulations align with the country's commitment to combatting climate change and achieving Net Zero targets;
- Compliance and Penalties: Landlords are responsible for ensuring their properties comply with the MEES regulations. Penalties for non-compliance can range from financial penalties to publication of non-compliance details; and
- Cost-effective Energy Efficiency Measures: Landlords must make cost-effective energy efficiency improvements to their properties up to a spending cap of £3,500 (including VAT) per property. If no cost-effective measures can be implemented, the landlord may register an exemption.
Subject to government consultation and in line with achieving Net Zero, the following changes to EPCs and MEES have been proposed, including:
- 1 April 2025: all non-domestic rented buildings in scope of MEES to be registered and have a valid EPC;
- 1 April 2027: all non-domestic rented buildings to meet a minimum of EPC C or have registered a valid exemption;
- 1 April 2028: landlords of non-domestic rented buildings in scope of MEES must present a valid EPC. This will help identify properties requiring further improvements; and
- 1 April 2030: all non-domestic rented buildings must meet a minimum of EPC B or have registered a valid exemption.
Corporate Social Responsibility
Net Zero has become a key component of corporate social responsibility (CSR) strategies for healthcare businesses. Tenants and investors are increasingly evaluating a company's sustainability practices when considering property options. Adopting Net Zero principles helps organisations demonstrate their commitment to the environment, social responsibility, and long-term sustainability goals. By occupying and investing in Net Zero properties, healthcare businesses can align their operations with their CSR objectives while also benefiting from the positive branding and reputation associated with sustainable practices.
The carbon footprint of a property refers to the total amount of greenhouse gas emissions produced as a result of its operation. Reducing the carbon footprint of property is essential for achieving the governments Net Zero target.
Property landlords investors and owners should consider the following strategies to reduce their carbon footprint:
- Energy Efficiency Improvements: This includes upgrading insulation, installing energy-efficient lighting systems, ventilation, and utilising smart technologies for energy management. Conducting energy audits and regularly monitoring energy consumption can help identify areas for improvement and guide decision-making;
- Renewable Energy Integration: Transitioning to renewable energy sources significantly reduces carbon emissions associated with electricity consumption;
- Sustainable Design and Construction: Incorporating sustainable design principles at the early stages of a property project can minimise its environmental impact;
- Water Conservation: Conserving water not only reduces the strain on local water resources but also saves energy associated with water treatment and distribution. Implementing water-efficient fixtures, such as low-flow toilets and faucets, and adopting water recycling systems can significantly reduce water consumption and carbon emissions;
- Tenant Engagement and Education: Engaging tenants and raising awareness about sustainability practices can have a substantial impact on carbon footprint reduction; and
- Monitoring and Reporting: Regularly monitoring and reporting on energy consumption, carbon emissions, and sustainability performance allows property owners and managers to track progress, identify areas for improvement, and set targets for carbon reduction.
By implementing these strategies, property owners can significantly reduce their carbon footprint and contribute to a more sustainable future.
Properties that are energy-efficient, sustainably designed, and aligned with Net Zero principles are not only better for the environment but also are more likely to attract socially responsible tenants and investors, are more marketable and likely to hold long-term value.
For more information on this article, please contact Ben Tarrant or Rianna Treasure.