Too many UK businesses are largely unaware of new environmental legislation concerning the energy efficiencies of the buildings they own and occupy, according to a new survey commissioned by Irwin Mitchell: Redefining the Office – A report on office occupier trends in 2023.

The new Minimum Energy Efficiency Standards (MEES) legislation means that from 1 April 2023, property owners must not continue to let properties that have an Energy Performance Certificate (EPC) rating of F or G (unless they have an exemption) and all let properties will need to have a minimum EPC rating of E.

Energy performance certificates (EPCs) were introduced to inform and educate potential buyers or tenants about a building’s energy performance. The assessment addresses both the building fabric and its main services (heating, lighting, air conditioning) to produce an asset rating that indicates how efficiently the building has been designed.

Despite the rules being less than a month away, the survey of over 500 office property decision makers found that only 32% of respondents said they knew the EPC rating of their main office building, with a similar percentage of only 31% saying they know what EPC rating their office needs to be in April.

Concerningly, nearly a fifth (19%) of the property decision makers surveyed said they do not know their office’s EPC rating at all. Another 18% admitted they do not know what it needs to be to be compliant in April. Additionally, 10% of respondents said they do not understand EPC ratings.

Tim Rayner, Joint Head of Real Estate Disputes at Irwin Mitchell said:

“These figures should raise eyebrows, particularly given the changes come into force in April and with further new Minimum Energy Efficiency Standards (MEES) legislation down the line. For example, for all new tenancies beginning in 2025, the government is keen to change the minimum rating to a C.”

The survey revealed a number of concerns with the new MEES legislation amongst property occupiers. Topping the list of concerns was lack of knowledge – with just under a third (32%) of respondents saying that they were concerned that they don't know whether their office will be MEES compliant from April 2023. And this was across all sectors.

Other concerns respondents listed were that landlords would pass on the extra costs of upgrading buildings via the service charge or dilapidations claims (21%) and the disruption to working when landlord upgrades are carried out (18%). Sixteen percent of respondents said that they were concerned that if their landlord did not carry out the requisite work, they wouldn't be able to renew their lease.

Among other findings from the survey:

• UK businesses seem to be on the move with many looking for higher-quality space than they had previously.
• Over three-quarters (76%) of respondents said they have either moved in the last 12 months or are considering moving now. Over half (56%) said they either took on more office space in the last 12 months or plan to in the future and 20% said they had reduced or are looking to reduce their office space.

Tim Rayner said:

“Office occupiers really need to keep an eye on the situation. Whilst the cost of upgrades is in theory an issue only for landlords, some landlords may prefer not to incur that cost at all and instead try and end the lease. Those landlords who intend to carry out the upgrades may not only want access to the premises and cause potentially significant disruption but may try and pass on the cost of the upgrading either via the service charge or by seeking to include additional obligations in new leases, making tenants expressly liable for such costs. The MEES deadline is fast approaching and therefore it’s important that tenants are forearmed and ensure, for instance, that their leases provide the controls they need.”

The top driver for change appears to be reducing energy bills and improving energy efficiency (25%). This is followed by having greater flexibility in how and where businesses work (24%) and thirdly to accommodate different working patterns following the pandemic (23%).

This is borne out in terms of the three most desirable aspects of space businesses wish to move to, with the highest vote going to higher quality/Grade A space (39%), together with flexible office space such as WeWork or Regus (39%) and space in a hub where there are other similar industries (32%).

As Sarah Swann, Real Estate Transactions Senior Associate Solicitor at Irwin Mitchell added:

“This demand is reflected in what we are seeing in the property markets today. As businesses adapt to new ways of working, try to entice workers back to the office and cope with higher energy costs, they increasingly want higher grade space, better facilities and greater energy efficiencies in the buildings they occupy. Businesses also want greater flexibility as they work out their space requirements long term. Leases are not dead: 30% of the respondents to our survey said they would move to a traditional lease arrangement - but this is clearly no longer the only option.”

Other key findings of the survey were:

• This shift in aspiration appears to be particularly high in Greater London where 42% of respondents said they would look for higher quality/Grade A office space, 39% for flexible workspace and 36% voted for a hub of similar industries.
• 84% of respondents said they’d be prepared to pay higher rents for office space that reduces their impact on the environment - but most would expect some payback from the landlord in terms of reduced service charge or energy bills.
• 41% of respondents said rising costs were the biggest threat to their business in the next 12 months. This is followed by UK economic downturn (39%) and inflation (36%). Interestingly, 15% of respondents still saw the pandemic as a threat.
• Smaller companies are particularly worried by rising costs. Over half (56%) of respondents who work for a company with 10-49 employees said the biggest threat to their business in the next 12 months is rising costs, this is compared to a third (33%) of respondents who work for a company with 250-500 employees who said the same.
• Only 4% of respondents said they had no particular worries in the next 12 months.