Two dates define the law on letting energy-inefficient commercial property. Since 1 April 2018, you cannot grant a new tenancy of a non-domestic property with an EPC below band E. Since 1 April 2023, you cannot continue to let one, even on a lease signed years earlier, unless an exemption applies and has been registered. That second date is the one that catches people: it converted the minimum energy efficiency standard (MEES) from a rule you met at lease grant into a standing obligation that applies every day a sub-standard building is occupied by a tenant.
The rules sit in the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (SI 2015/962) and apply in England and Wales only; Scotland and Northern Ireland run separate regimes. The commercial (non-domestic) rules deserve separate treatment from the residential ones on every point that matters: the exemption logic, the penalty formula and, because compliance is ultimately a spending decision, the tax treatment of the money spent putting a building right. For the domestic regime, which has different penalties and its own £3,500 cost cap, see our MEES guide for residential landlords.
The E floor: what is actually enacted
Regulation 27 of SI 2015/962 prohibits a landlord from letting sub-standard non-domestic private rented property unless regulation 29 or one of the Chapter 4 exemptions applies. "Sub-standard" is defined in regulation 22 as a property with an energy performance rating below band E, so the prohibition bites on F and G rated buildings. Band E itself complies: the enacted floor is E, not C, and not B.
The prohibition arrived in two stages:
- From 1 April 2018: no granting of new tenancies of sub-standard non-domestic property, including lease renewals and extensions.
- From 1 April 2023: no continuing to let sub-standard non-domestic property on existing tenancies.
Under the 2018 rule, a 15-year lease already running meant you could lawfully do nothing until a lease event. Under the 2023 rule you are in breach from day one, and the penalty ceiling steps up once the breach passes three months. There is no grace period and no requirement for the enforcement authority to warn you first.
Nothing above requires a commercial property to reach band C or band B today. Where you see those bands quoted with deadlines, you are reading about consultation proposals, covered below.
Which buildings, tenancies and landlords are caught
Regulation 20 defines non-domestic PR property broadly: property in England and Wales let under a tenancy and not a dwelling. Offices, shops, industrial units, warehouses and mixed-use commercial elements are all in scope where tenanted. The regime attaches to whoever is landlord for the time being, so buying a tenanted sub-standard building means buying its MEES problem, softened only by the six-month temporary exemption below.
Some lettings fall outside the regime because of the tenancy's terms: very short tenancies (six months or less with no security or history of extension) and very long ones (99 years or more) are excluded from the underlying definitions, as are properties that are not required to have an EPC at all, such as certain listed buildings where compliance would unacceptably alter their character, places of worship and some standalone small buildings. Whether an EPC is required at all is a separate question under a different statute, answered in our commercial EPC requirements guide: MEES only bites where a valid EPC exists or should exist.
Who the landlord is makes no difference to scope but a large difference to the tax analysis later. Most sub-E commercial stock is held in companies, from single-asset SPVs to trading groups holding their own premises through a property company. Pension arrangements are caught too: a SIPP or SSAS trustee letting a commercial unit is caught, and trustees have their own reasons to keep the asset lettable and mortgageable. See our guide to buying commercial property through a SIPP.
The exemptions: the payback test, the all-improvements route, and the register
Commercial MEES writing most often goes wrong by importing the domestic £3,500 cost cap. There is no cost cap in the non-domestic regime. An economic test does the work the domestic cap does.
The seven-year payback test (regulation 28)
You can only be required to make "relevant energy efficiency improvements", and regulation 28 defines relevance for commercial property through a simple payback calculation: an improvement is relevant only if the value of the energy bill savings it is expected to achieve over the seven years from installation equals or exceeds its cost, calculated using the approved methodology, current energy prices and the cost of purchase and installation. An improvement that will not pay for itself within seven years is not relevant, and you cannot be compelled to make it.
Two mechanics the commentary drops. The payback test is a second gate, not the first: the improvement has to be a measure listed in the Schedule to the Green Deal (Qualifying Energy Improvements) Order 2012 or in Table 6 of Approved Document L2B, and be identified as a recommended improvement for that property in a green deal report, a recommendation report or a report prepared by a surveyor, before the payback question is even reached. And the cost side of the test is the purchase and installation cost excluding VAT, uplifted by an interest factor tied to the Bank of England base rate, so a raw division of cost by annual saving understates the true payback.
Worked through, the test looks like this. Joan holds a single industrial unit personally, rated F. She is quoted £28,000 for solid wall insulation projected to save around £3,000 a year in energy costs (her contractor's projection, so treat the figures as illustrative). Savings over seven years are roughly £21,000 against a £28,000 cost: a simple payback of about 9.3 years. The insulation fails the test and is not a relevant improvement. If the remaining recommendations on her EPC also fail, Joan has no relevant improvements that can be made, which takes her to the next exemption.
The all-improvements-made exemption (regulation 29)
Regulation 29 permits continued letting of a sub-standard property where either all relevant energy efficiency improvements have been made, or there are none that can be made. Do everything the seven-year test says is economic and you may lawfully keep letting even if the building stays below E. The exemption lasts five years from the date you register the required information under regulation 36(2), after which the position must be reassessed and, if still applicable, re-registered.
Consent, devaluation and temporary exemptions (regulations 31 to 33)
- Third-party consent (regulation 31): where an improvement needs the consent of the tenant or of any other third party, such as a superior landlord, a lender or a planning authority, and that consent has been refused or granted subject to conditions the landlord cannot reasonably comply with. On commercial stock the superior landlord and the lender are the usual blockers, because a headlease alterations covenant or a facility agreement can bite before the tenant is even asked. Lasts five years from registration.
- Devaluation (regulation 32): where an independent surveyor's report states that making the improvements would reduce the market value of the property, or the building it forms part of, by more than 5%. Lasts five years from registration.
- Temporary exemption (regulation 33): six months, not five years, for a person who has recently become the landlord in specified circumstances, including buying a building with a sitting tenant, being obliged to grant a lease under a pre-existing contract, or taking an overriding lease. Two quarters to assess, improve or register a substantive exemption, no more.
The PRS Exemptions Register (regulation 36)
No exemption protects you until it is registered. Regulation 36 requires you to place the information set out in the Schedule on the government's PRS Exemptions Register before relying on it. What makes that entry consequential on commercial stock is who reads it: a lender's solicitor on refinance, a purchaser's due diligence, and increasingly institutional tenants running their own supply chain against net-zero reporting. An entry claiming more than the evidence supports is read by three audiences with reasons to test it, and registering false or misleading information is separately penalised.
Do not assume an exemption travels with the building either. It is registered by, and runs from the registration of, the landlord who registered it, and regulation 33 gives a new owner their own six-month window, which is what the scheme plainly expects a purchaser to use. The government's non-domestic MEES landlord guidance sets out the evidence each exemption class requires.
One point where holding personally, as Joan does, beats holding through a company: interest on borrowing against commercial property sits outside the Section 24 restriction that applies to residential lets, so a retrofit's financing is relieved differently depending on what the building is. The distinction is worked through in our Section 24 and commercial property guide.
What the enforcement authority can actually charge you
Enforcement sits with local weights and measures authorities (trading standards), who can serve compliance notices and penalty notices under SI 2015/962 (regulations 37 and 38 of that instrument). The money is in regulation 41, and unlike the flat figures in the domestic regime, commercial penalties scale with the property's rateable value:
| How long the breach has run | Formula (reg 41) | Overall cap | Ceiling at a £40,000 rateable value |
|---|---|---|---|
| Under 3 months | Up to the greater of £5,000 or 10% of rateable value | £50,000 | £5,000 (10% is £4,000) |
| 3 months or more | Up to the greater of £10,000 or 20% of rateable value | £150,000 | £10,000 (20% is £8,000) |
| Registering false or misleading information (reg 41(4)) | Up to £5,000 | £5,000 | £5,000 |
| Failing to comply with a compliance notice (reg 41(4)) | Up to £5,000 | £5,000 | £5,000 |
Every figure in that table is a maximum. Regulation 41 permits a penalty "not exceeding whichever is the greater of" the cash limb and the percentage limb, so the greater-of test sets the ceiling and the authority decides what to impose beneath it. Read as a fixed charge, the table overstates exposure at exactly the point a board is using it to decide what to spend.
Each financial penalty can be paired with a publication penalty under regulation 39: details of the breach, the property, the penalty and, where the landlord is not an individual, the landlord's name are published on the publicly searchable register for a minimum period of 12 months. For an institutional or pension landlord, the named entry outlasts the cheque.
The formula matters more than the headline £150,000. Take Delta Units Ltd, an SPV holding a 1990s office rated F with a rateable value of £40,000, still collecting rent 10 months after the 2023 deadline with no exemption registered. The over-three-months limb applies: 20% of £40,000 is £8,000, so the "greater of" test sets the ceiling at £10,000, and that is the most the authority may impose. Now scale the same facts to a £600,000 rateable value office block: 20% is £120,000, inside the £150,000 cap, so the maximum exposure is £120,000. Same breach, twelve times the maximum, purely because of rateable value. And penalties attach per property, so an industrial estate with five sub-standard tenanted units is five separate exposures.
Is EPC C by 2027, or EPC B by 2030, actually law?
No, and this is the most persistent error in the commercial property press. The government consulted in 2021 on raising the non-domestic minimum to EPC B by 2030, with an interim EPC C step along the way. No statutory instrument has been made. The government's own non-domestic MEES landlord guidance still states the minimum as EPC E and carries no EPC C or EPC B date anywhere in it; the EPC B work appears only as a linked consultation.
You can see the consequence of writing proposals as law in the commentary itself: some firm updates state an interim C requirement from April 2027 as settled fact, while others report the interim date as 2028. Both dates come from consultation material and reporting around it, which is exactly why they disagree: there is nothing enacted to agree on. The only standard a landlord can currently breach is the E floor.
Plan for it anyway. Direction of travel is one-way, and a building sitting at E has no headroom if the floor rises, so modelling upgrade paths to C and B across normal capex and lease-event cycles is sound asset strategy. It is not a legal obligation, and an agent telling you that you "must" reach B by 2030 is quoting a proposal. The domestic regime has a parallel story, a consulted-on C by 2030 with no enacted deadline, in our domestic EPC C 2030 guide.
Paying for the works: capital vs revenue, and the FA 2026 allowances that shrink the bill
Here is the part of the MEES decision the legal commentary never prices. Retrofit spend is not simply a cost; most of it attracts tax relief, and for a company the relief can be immediate.
Step one: capital or revenue? A genuine like-for-like repair or replacement, restoring the building to its previous condition using modern equivalent materials, is revenue expenditure, deductible against rental profits in the year (HMRC's framework is at BIM46900). Most MEES works are not that: new insulation, upgraded glazing, an HVAC replacement that lifts specification, LED relighting of a building that never had it. Those are improvements, so capital: no income deduction, but they add to base cost for a future disposal, and the plant within them enters the capital allowances system.
Step two: which allowances? Commercial property has a decisive advantage over residential here: the Capital Allowances Act 2001 section 35 bar on plant in dwelling-houses does not apply, so the full menu is available. Following Finance Act 2026, enacted 18 March 2026, the current menu is:
- Annual investment allowance (AIA): £1m a year, permanent, giving a 100% deduction in year one for most plant and machinery including integral features.
- Full expensing: 100% first-year allowance for companies only (CAA 2001 s.45S) on new and unused main-rate plant, uncapped.
- 40% first-year allowance: new from 1 January 2026 (FA 2026 s.29, inserting CAA 2001 s.45U) on new and unused main-rate plant, excluding cars. It is not restricted to unincorporated businesses, but in practice it is the route for individuals, partnerships and lessors who cannot use full expensing and have exhausted the AIA.
- Writing-down allowances: the slow lane for anything left over: 14% a year on the main pool (cut from 18% by FA 2026, see CAA 2001 s.56) and 6% a year, unchanged, on the special rate pool.
The classification that matters most for MEES works is integral features (CAA 2001 s.33A, detailed at CA22320): electrical and lighting systems, cold water systems, space and water heating, powered ventilation and air cooling, lifts and external solar shading. That list reads like a MEES retrofit shopping list, and it is special-rate expenditure, which is why the ordering matters. Full expensing cannot reach it, because section 45S is main-rate only, and left in the special rate pool it is relieved at 6% a year. Covered by the AIA, the same spend is 100% deductible immediately. So point the £1m AIA at the integral features and leave the main-rate plant elsewhere in the works to full expensing or the 40% first-year allowance, which absorb it without touching the AIA. Reverse that order and the AIA is spent on plant that had a 100% route of its own. Our guides to capital allowances on commercial property and capital allowances for offices work the classification in detail.
Step three: the comply-vs-exempt decision in pounds. Return to Delta Units Ltd, the SPV with the F-rated office at a £40,000 rateable value. Its choices, in cash:
- Do nothing: exposure of up to £10,000 plus a publication penalty once the breach passes three months, repeatable per property, plus an asset that is legally unlettable at the next void and increasingly hard to refinance or sell.
- Retrofit: say a £60,000 LED lighting and HVAC package lifts the building to D (a market-range illustration; get real quotes). Substantially all of that is integral features. Claimed against the £1m AIA, the full £60,000 is deductible in year one, saving £15,000 of corporation tax at the 25% main rate (19% at the small profits rate; rates per gov.uk). Net cash cost: £45,000, before counting the improving works' addition to base cost on a future sale, the energy savings themselves and the rental and valuation upside of a compliant building. Any element that is genuinely new, unused main-rate plant could go through 100% full expensing instead, preserving AIA capacity.
- Exempt: if quotes show the recommended measures failing the seven-year payback test, the honest answer may be a regulation 29 registration at close to nil cost, buying five years. The exemption ends, the trajectory pressure does not.
The point of the exercise is that the gross quote is the wrong number to argue about at board level. A £60,000 retrofit that costs £45,000 after tax, against a computable penalty ceiling and a five-year exemption alternative, is a decision you can actually model. Our commercial property tax overview maps the wider reliefs that sit alongside the allowances. Timing note: any chargeable period straddling 1 April 2026 for a company, or 6 April 2026 for an individual or partnership, uses a hybrid, time-apportioned writing-down rate between 18% and 14%, so the year the works are incurred can change the answer at the margin.
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Nobody has to pay for the works, until the lease says so
Compliance cost allocation is contractual, not statutory, and the starting point disappoints most landlords: a full repairing and insuring lease obliges the tenant to repair, and MEES works are almost always improvements, so they fall outside the repairing covenant. Dilapidations at lease end compensate for disrepair against the lease standard, not for the distance between band E and band B, and service charge recovery depends entirely on drafting: many modern leases expressly exclude improvement costs, and tenants with negotiating strength resist MEES clauses that turn an asset upgrade into their occupancy cost. (The statutory service charge controls in the Landlord and Tenant Act 1985 are a residential regime and do not apply here.)
The realistic levers are lease events. On renewal, landlords increasingly seek green clauses: cost-sharing for energy works, tenant cooperation and access obligations, restrictions on tenant alterations that would worsen the EPC, and data-sharing on energy use. At rent review, the parties argue over whether energy performance is reflected in the hypothetical letting. And a negotiated deal, where you fund the works and the tenant contributes through a rentalised uplift, can beat both litigation positions, particularly where the tenant's own net-zero commitments make an F-rated address a problem for them too. The third-party consent exemption interlocks with all of this: a tenant who refuses access or consent to works can found a five-year regulation 31 exemption, which reshuffles the negotiation.
What happens to the allowances when you sell
One consequence of loading a building with newly-allowanced fixtures arrives at exit. On a sale, the default is a joint election under CAA 2001 section 198, made in writing to HMRC within two years of completion, fixing the part of the price attributed to fixtures (procedure at CA26850). The elected figure sets the seller's balancing adjustment and the buyer's future claims: a £1 election preserves your allowances, a higher figure hands relief across and becomes a price negotiation. Get the fixtures requirements wrong and those allowances can be permanently lost, which discounts what a tax-sensitive purchaser will pay. If a MEES retrofit is partly justified by capital allowances, minute the fixtures value at the time.
MEES vs the EPC duty: two statutes, one boundary
Keep the two energy regimes apart, because they are separate statutes doing separate jobs. SI 2012/3118 answers whether a certificate must exist for a sale or letting and who must produce it; SI 2015/962 answers whether the band on that certificate is good enough to let. Our commercial EPC requirements guide covers when a certificate is needed and our commercial EPC cost guide covers what assessments cost. Both the assessment fee and exemption registration costs are revenue deductions against rental profits. If your building has no EPC and needs one, start there.
Getting the compliance and the tax right together
Commercial MEES is a legal floor with a financial core. The law is settled and enforceable today: E is the minimum, the 2023 extension made breach a continuing state, and regulation 41 caps exposure by rateable value at up to £150,000 per property. Everything beyond E is proposal.
The order of work separates a cheap answer from an expensive one. Confirm the current band first, because a reassessment of a building improved since its last certificate sometimes solves the problem outright. Price the recommended measures next and run them through the regulation 28 test on its own terms, cost excluding VAT and uplifted by the interest factor, rather than on a raw division. Only then choose between retrofit, exemption and renegotiation, and fix the capital allowances treatment while the contractor's invoices are still being drafted: one invoice line reading "refurbishment works" is far harder to split into integral features afterwards than to specify correctly now. Then register any exemption before you rely on it, and put its five-year expiry in the lease-event calendar the same day. That is the date that gets forgotten, and it arrives with the building no better than it was.