But according to Deloitte’s 2023 Commercial Real Estate Survey, very few companies are prepared to implement new regulatory requirements and almost half say they are awaiting guidance to take any action. Don’t leave your portfolio at risk!
In this article, we’ll summarise the upcoming regulatory changes that will impact the UK real estate industry and how property professionals can prepare.
1. MEES regulations will be extended from 1st April
The current Minimum Energy Efficiency Standard (MEES) prevents landlords in England and Wales from granting new leases on commercial properties with an EPC rating of F or lower.
What’s changing with MEES?
From 1st April 2023, the current regulation will be extended to include existing leases. This means that all leased commercial property will need an EPC rating of E or higher. Landlords who fail to comply could incur hefty fines, ranging from £5,000 to £150,000 depending on the length and severity of the breach.
Some properties and landlords may be exempt from MEES. Find out more about MEES exemptions.
2. Corporation Tax is rising from 1st April
The UK corporation tax rate will rise from 19% to (up to) 25% for companies with profits over £50,000 from 1st April.
Will you pay higher corporation tax?
That depends on how much profit your business generates:
- Companies with taxable profits over £250,000 will pay corporation tax at the new rate of 25% from 1 April 2023.
- Companies with profits less than £50,000 will continue to pay corporate tax at 19%.
- Companies with profits between the £50,000 and £250,000 brackets will pay on a sliding scale between 19% and 25% based on profit generated.
This rise will not apply to small businesses or companies with profits less than £50,000, who will continue to pay corporation tax at 19%.
3. Updated Building Regulations apply from 1st July
The UK government’s Building Regulations for England were updated in June 2022 to improve the energy efficiency of new build homes and non-domestic properties and reduce their carbon emissions by almost a third.
What’s changing with Building Regulations in England?
For now, the changes only apply to projects that don’t yet have building notices or planning approval and have started significant work. But from July 2023, all projects will have to comply.
Here are some of the key changes:
- All new build homes will have to produce 30% less carbon emissions and non-domestic properties 27% less.
- New and existing non-domestic buildings must have improved heating systems, with a max flow temperature of 55C for new systems. An important change for landlords looking to improve EPC ratings.
- New-build homes, care homes, schools and student accommodations will be subject to glazing limits to prevent unwanted solar gain and require increased cross ventilation.
How to prepare your property business for regulatory changes in 2023
1. Check if any of your properties have an EPC rating of F or G. Then check if you can apply for any MEES exemptions and do this soon as possible. Audit any remaining non-compliant properties and look at measures to improve their higher rating. The EPC recommendation report for each building is a great source of potential improvements.
2. Make sure renovations & new builds comply. All new projects, or those with planning permission where significant work won’t begin before 2023, have sufficient measures planned to reduce their carbon emissions by 30% (domestic) or 27% (non-domestic) and comply with the new Building Regulations. These will also impact renovations on existing properties, eg. if installing new heating or air conditioning systems.
3. Review all of your contracts before works begin. Check when leases expire, which parties are responsible for the cost of improvements, if you have the required rights of access to carry out renovations under the lease terms and if any costs for EPC-increasing works can be recovered from the tenant.
4. Take stock of your assets and be strategic about selling off. If you have assets you’re planning to dispose of in the next year or so, consider bringing forward those planned sales to pre-April 2023 while corporation tax is still at the current rate. This is especially important for companies with profits exceeding £250,000.
5. Focus on improving your risk management practices. With more regulatory changes coming, you can prepare your business and your portfolio by collecting and analysing data from previous projects. For example, if you’re comparing one measure versus another or assessing potential risks on a project, you can look back at historic data to more accurately predict the potential financial and ESG impact of each decision. This helps you mitigate risks in advance and make better decisions based on accurate project data.
6. Improve data quality and transparency. The quality of your data matters – only good data can support better decisions. By digitising the property development process in software like Alasco, you can create a real-time overview of every project and budget in an accessible platform with traceable, digital workflows that include all your stakeholders. This makes generating custom reports quick and easy, whether you need one tailored for an investor, a manager or to help you secure finance for your next project through proven data.
The changes already scheduled for 2023 are unlikely to be the last, especially with the UK Green Taxonomy on its way. Take these steps to protect your portfolio and put your business in the best position to adapt to new regulations, no matter what comes next.
