Non-domestic MEES exemptions and EPC B in 2031 – what do landlords need to know?

The proposed EPC B requirement for larger non-domestic buildings from 2031 has understandably raised concerns about how difficult some buildings will be to improve. 

The good news is that MEES has never been a case of “improve the building regardless of cost or practicality”. The existing exemptions and flexibility are expected to remain broadly in place under the Government's proposals. And remember, when it comes to exemptions, it’s the recommendations from the EPC that are relevant, not any bespoke improvement advice you are given by us as assessors. It’s also worth bearing in mind that though the Government has explicitly said that the existing flexibility mechanisms, including the 7-year payback test and exemptions, will remain in place under the proposed 2031 standard, the mechanisms may change. 

The 7-year payback test 

First, an important distinction: the 7-year payback test isn't technically an exemption. 

It determines whether an improvement actually needs to be considered under MEES in the first place. If a recommended measure does not meet the 7-year payback test, it’s not ‘relevant’ and can be ignored. 

This can be more significant than many landlords realise. For example, many big fabric improvements can fail the 7-year test once the calculation is carried out. Similarly, replacing gas systems with heat pumps can fail the test because, despite improving the EPC rating, electricity is significantly more expensive than gas. 

So a recommendation appearing on an EPC does not automatically mean that the landlord will have to carry out the work. 

The main exemptions 

There are several circumstances where a landlord can currently register an exemption against a particular improvement or improvements. 

The building cannot be improved sufficiently 

If all the ‘relevant’ improvements have been made, but the property still does not reach the required EPC rating, an exemption can be registered. 

This could become particularly important with the proposed EPC B requirement. Some buildings may have very limited scope for further improvement, even after all cost-effective measures have been considered. 

Third-party consent 

Sometimes the landlord cannot carry out a measure because someone else needs to agree to it. 

This could be the tenant, a superior landlord, a lender, a planning authority, or anyone else from whom consent is required. The landlord has to make reasonable efforts to obtain the consent. If it cannot be obtained, an exemption is available. 

This could be particularly relevant where major works would be disruptive to an existing occupier. A landlord may have a technically viable route to EPC B but not want to undertake major alterations to heating, cooling or the fabric while a tenant is operating its business from the building. Where the tenant refuses consent, the exemption lasts until the tenancy ends, or five years, whichever is sooner. 

The improvement would reduce the property's value 

An exemption can also apply where an improvement would reduce the property's market value by more than 5%. This requires an appropriate independent RICS valuation report. 

Wall insulation could damage the building 

There is a specific provision covering cavity, external and internal wall insulation where expert advice confirms that the work could have a negative impact on the building's fabric or structure. 

Recently becoming a landlord 

There are also limited circumstances where someone who has recently become a landlord can obtain a six-month temporary exemption. This can include purchasing a property which already has a tenant in place. 

Exemptions aren't permanent 

Most exemptions currently last for five years, although some, like tenant-consent exemptions, can end sooner. 

They all need to be registered on the PRS Exemptions Register, with appropriate evidence. An exemption does not simply transfer to a new owner when a property is sold. 

What does this mean for EPC B? 

The proposed 2031 EPC B requirement will undoubtedly mean more landlords need to think seriously about exemptions. For some buildings, there may simply not be a realistic route to EPC B. For others, the building may be capable of improvement, but the timing could be the problem. Major works might be difficult or inappropriate while a tenant is in occupation and could be something better dealt with at lease expiry or during a refurbishment. 

The Government's interim response indicates that the existing approach to exemptions and the 7-year payback test will broadly continue, although the detailed rules still need to be confirmed. 

For landlords, the key message is therefore simple: don't assume that every recommendation on an EPC will have to be carried out, and don't assume that every building will have to reach EPC B regardless of cost or practicality. 

Understanding the MEES exemptions – and identifying potential exemptions early – will become an increasingly important part of planning for the 2031 standard.