Commercial landlords have been given more breathing space on energy efficiency, after the Department for Energy Security and Net Zero confirmed it is dropping the previously proposed interim milestone of EPC C by 2027 for non-domestic rented buildings.
The revised timetable, however, is not a reason to defer planning altogether, particularly where the cost of any works could be structured more tax efficiently.
Under the interim response to its earlier consultations, the Government now proposes that from 2031, privately rented non-domestic buildings over 1,000 square metres in England and Wales will be expected to meet EPC B, where doing so is cost-effective.
Buildings below that threshold are expected to remain subject to the current minimum of EPC E, with no fixed deadline to move beyond it.
The existing seven-year payback test and exemption mechanisms will remain in place, meaning landlords will only be required to carry out improvements that are practical, affordable and cost-effective, rather than facing a blanket requirement regardless of cost.
The change reflects a shift in policy focus towards the buildings that matter most environmentally.
Premises of 1,000 square metres or above represent around one tenth of commercial and industrial buildings but are estimated to account for over half of the sector's carbon emissions and the Government believes improving them could save tenants up to £360 million a year in energy bills by 2031.
For smaller premises, including much of the high street and SME occupied stock, this gives landlords more flexibility to plan upgrades over a longer period without a hard deadline looming.
Landlords should not read the revised timetable as a reason to relax entirely, as more than 13,000 commercial rental properties are still estimated to hold an EPC rating of F or G.
This means that they are already non-compliant and unlettable under the current EPC E minimum.
Unfortunately, evidence from the market suggests that the pace of properties achieving higher ratings has been slowing rather than accelerating.
Any legislation to formalise the 2031 EPC B requirement is not yet in place, but the direction of travel is clear and landlords with larger buildings, in particular, should begin identifying which assets are likely to be affected.
Where landlords do carry out energy efficiency works, whether prompted by MEES or simply by tenant demand, the tax treatment of that expenditure deserves as much attention as the works themselves.
Getting the split between capital allowances and repairs wrong can mean paying more tax than necessary or creating a compliance risk further down the line.
Under UK tax law, capital allowances are available primarily for plant and machinery rather than the structure of a building itself, but a surprising amount of a typical energy efficiency refurbishment can qualify.
Replacement lighting, heating and cooling systems, insulation, and associated integral features can often attract capital allowances, alongside the design, project management and site costs that go with them.
Separately, works that simply restore a building to its previous condition, such as like-for-like repairs, will generally be deductible as a revenue expense in the year they are incurred.
The distinction matters because capital expenditure is relieved over time through allowances, while a qualifying repair reduces taxable profit immediately.
The position becomes more complex where a project mixes genuine repair with clear improvement, for example replacing an ageing, inefficient boiler with a modern, higher specification unit as part of wider works.
HMRC will look closely at whether the work goes beyond restoring the property to its original condition, so an early, itemised review of the specification can make a material difference to the tax outcome.
Here are some steps that landlords should consider given the changes ahead:
Energy efficiency requirements continue to evolve and commercial landlords face increasing pressure to balance compliance, investment planning and tax efficiency. Understanding future EPC obligations and the tax implications of refurbishment projects can help avoid unnecessary costs and support long-term property strategy.
Our property specialists work with landlords, investors and business owners to assess compliance requirements, review refurbishment plans and identify potential capital allowances opportunities.
If you would like to discuss your commercial property portfolio or the tax treatment of planned energy efficiency works, please contact our property partner Andy Noton (andrewnoton@lubbockfine.co.uk)
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