Navigating EPC refurbishments in occupied buildings

COMMENT: With the potential 2030 MEES legislation changes looming, many commercial property owners are understandably looking to make refurbishments early to improve their EPC ratings and ensure compliance. With an estimated 80% of offices in London alone falling under an EPC rating of B, the amount of work required in the UK is huge.   An increasing number of clients are looking to make EPC upgrades while the property is still fully, or partially, occupied. This is not a straightforward task. While tenants are in situ, a landlord must be mindful to limit the amount of disruption caused. There are multiple factors to consider here, including access restrictions, out-of-hours working, increased costs, health and safety challenges, dust and noise issues and impacting the tenant’s quiet enjoyment of the property. Not all upgrades are equal The June 2022 updates to the Building Regulations (Part L) have a greater focus on the ‘fabric first’ approach. From roof replacements to window upgrades, refurbishments to the building fabric can often be more invasive, so reducing the impact in occupied buildings is no mean feat. Applying to all non-domestic building owners, the office sector is not solely affected by changes to MEES regulations. Looking at the industrial and logistics sector, research estimates that 1.16bn sq ft of warehouse space across the UK will need upgrading to meet the 2030 deadline. But unlike offices, warehousing units have the benefit of space. With larger areas to work in, the need to operate out of hours is often removed, but the disruption to the tenant is not. Increased noise and dust levels can have a significant impact on a tenant – especially those operating in a highly controlled environment. With the rise of renewables, the installation of solar PV is one many property owners are considering. While it is a great solution to improve a building’s energy efficiency, the building itself must be suitable; solar PV installations often require upgrades to the electrical infrastructure and suitable tolerances in the buildings structural frame to support them. With many industrial assets built decades prior, it is likely their structural frames/roofs are not currently strong enough to support a PV installation, leading to more invasive refurbishments and increased tenant disruption.  Getting tenants on board Open and honest conversation between the landlord and tenant is key. Upon completion of the EPC modelling exercise and understanding any required work, landlords will need to communicate plans to their tenants alongside discussions regarding costs and how these may be portioned. With a tenants’ fit-out measured in EPC modelling, if they use a considerable amount of M&E plant fuelled by natural gas, extensive plant upgrades will be required to achieve a higher rating in a system that favours electricity. Should the landlord have to front these costs?  It is also worth considering the tenant’s end lease obligations. The tenant will have likely fitted out a property to suit their bespoke operations and it is unlikely the landlord (and future tenants) will require this fit-out. This could result in challenges around the dilapidation liabilities at the end of a lease. Is the landlord or tenant liable to reconfigure lighting, HVAC, etc that has been upgraded to improve the EPC, or, should the landlord have to front these costs?  Despite some potential expenditure, there are long-term benefits for the tenant. With the cost of gas and electricity on the rise, tenants will benefit significantly from reduced energy bills any EPC led refurbishments produce. If the landlord removes the break clause, or extends the lease, then past any initial disruption tenants can enjoy the benefits of reduced expenditure on a longer-term basis.  Time is key for any project, and when looking to make ESG refurbishments it is worth considering whether speed will help or hinder you. We know that with time comes better technology, meaning improved efficiencies which could increase EPC ratings.  However, the risk surrounds the uncertainty of where construction costs will be. Before investing, owners must balance all options and move forward with a strategy that works for their business and their asset. Karl Stansbie is a director at Hollis