With the Government setting ambitious targets to reach Net Zero carbon emissions by 2050, and interim milestones such as the 2030 decarbonisation deadline for commercial buildings, the property sector is undergoing profound change. One of the most pressing issues relates to Energy Performance Certificates (EPCs). From 2027, it is expected that all non-domestic rented properties in England and Wales will need to achieve an EPC rating of at least C, with the standard raised further to EPC B by 2030. These deadlines pose significant challenges, particularly in the context of existing commercial leases that may span these dates.

Understanding the Net Zero 2030 target and EPC reforms

Latest research from the British Property Federation (BPF) underscores the scale of the challenge. Their analysis of commercial buildings across seven major UK cities reveals that 83% have an EPC below B. Just 2% are rated A and a further 15% rated B, suggesting that the vast majority of the commercial property stock must undergo significant upgrades to meet the 2030 target. The BPF highlights that achieving this would require nearly 95,000 sq. m of commercial floorspace to be improved every single day over the next five years. They urge the Government to provide clarity on regulations, timelines, and the division of responsibility between landlords and occupiers, as well as clearer rules on exemptions and enforcement.

The 2030 target forms part of the UK’s broader strategy to reduce emissions from the built environment. As commercial buildings account for a significant proportion of the UK’s total energy usage, improving their energy efficiency is essential. The proposed EPC requirements are seen as a critical mechanism to drive this improvement.

The minimum standard for letting commercial property is currently EPC E. This follows the implementation of MEES (Minimum Energy Efficiency Standards) regulations, which require landlords to ensure that properties meet a minimum EPC standard of E before they can be let, with certain exemptions applying. The upcoming imposition of C and B thresholds therefore reflects the Government’s strong commitment to accelerating carbon reductions. Landlords and tenants alike must now assess their readiness for compliance, especially when a current lease is not due to expire before one or more critical compliance dates.

The crux: repairing obligations and lease compliance

The core legal issue lies in the interplay between statutory compliance, repairing covenants, and alterations provisions within commercial leases. A typical full repairing and insuring (FRI) lease will impose on the tenant an obligation to keep the property in good repair and condition, and often to comply with laws and regulations.

But does that mean a tenant must fund or carry out upgrades to meet future EPC standards or Net Zero compliance?

The answer, frustratingly, is “it depends”.

The tenant’s obligation to comply with laws is usually forward-looking and may encompass changes in regulation. However, whether this extends to expenditure to improve a property’s EPC rating is more contentious. Upgrading insulation, replacing HVAC systems, or installing energy-efficient lighting may arguably go beyond repair and extend into improvement, typically a landlord’s responsibility.

In addition, some leases exclude compliance with laws that require the tenant to carry out structural works or improvements, particularly where the cost is disproportionate or where the law is enacted after the lease date. Others are more onerous and leave the tenant responsible for a wide range of compliance duties, regardless of cost.

Who pays? The emerging tension

As we approach 2027 and 2030, disputes are likely to arise where tenants refuse to undertake upgrades and landlords assert that the tenant must do so. Key points of contention will include:

  • Whether the lease requires compliance with new environmental regulations.
  • If so, whether this includes making improvements as opposed to carrying out repairs.
  • Whether the obligation falls under statutory compliance or service charge provisions.

Landlords may also face barriers if they wish to undertake works themselves to improve EPC ratings during the term of a lease. Without reserved rights of entry to carry out such improvements, or cooperation from the tenant, implementing such upgrades could be difficult.

The commercial reality and best practice

Given the complexity of the legal landscape and the scale of the works likely to be required, early engagement between landlords and tenants is essential. Both parties should:

  • Review existing lease terms with legal advisors to understand the extent of their obligations.
  • Assess the current EPC rating and the level of improvement needed.
  • Consider documenting any agreements to share upgrade costs, or to permit landlords to carry out necessary works.

From a leasing perspective, newer agreements should expressly deal with sustainability responsibilities. Green lease provisions, which align the interests of landlords and tenants in achieving energy efficiency targets, are increasingly becoming standard practice.

Conclusion

As we in the UK progress towards the Net Zero goals, the pressure on the commercial property sector to comply with stringent EPC standards is mounting. While the Government’s intention is clear, the legal obligations under existing leases may not be. Ultimately, the responsibility to improve a property to meet EPC C or B standards depends heavily on the wording of the lease. Landlords and tenants must therefore act now, collaboratively and proactively, to avoid conflict and to ensure that their buildings remain lettable and compliant beyond 2027 and into 2030.