Jack Lightburn and Claudia Oliver explore how net zero is shaping the commercial property market in practice, from EPC and MEES risk to evolving lease drafting.
What does “net zero” mean?
Net zero is now a familiar concept in the commercial property sector. The UK’s approach has developed through various policies and commitments, culminating in a legally binding target to reduce net greenhouse gas emissions to zero by 2050. The commercial property sector, as a major contributor to UK emissions, will play a critical role in achieving that target.
While the policy detail continues to evolve, the Government’s overall commitment remains unchanged. As net zero is not purely a technical challenge and depends on effective collaboration, landlords, occupiers, lenders and developers will all have an important role to play.
In a real estate context, net zero involves reducing a building’s greenhouse gas emissions as far as possible and offsetting any residual emissions through carbon offsetting or removal mechanisms. Emissions from heating, lighting, cooling and general building use are a key contributor, so reducing operational emissions across property portfolios is central to the sector’s transition.
What does this mean for commercial real estate?
Commercial property owners are facing rising regulatory pressure, alongside growing expectations from both investors and occupiers, for buildings with strong environmental credentials.
Although there are inevitably cost implications, early action can deliver clear benefits, including:
- lower operating costs;
- greater resilience and protection of long-term asset value;
- improved tenant attraction and retention;
- access to green finance and incentives; and
- future-proofing against tightening EPC and environmental requirements.
Against this backdrop, these pressures are increasingly being reflected in how commercial property is transacted and documented in practice.
EPCs, MEES and risk allocation
Much of the market activity around net zero continues to be driven by EPCs and the MEES regime.
While a 2021 Government consultation proposed raising minimum standards to EPC C by 2027 and EPC B by 2030, there has been no substantive policy development since. Despite this, the expectation that standards will tighten remains firmly embedded in market practice. At the extreme end, failure to maintain minimum EPC standards can render assets unlettable, creating “stranded” assets that may require significant investment before they can be re-let.
We are therefore seeing a growing focus on negotiating EPC related provisions, particularly around responsibility for improvement works, restrictions on tenant alterations that may adversely affect EPC ratings and the extent to which landlords can recover the cost of energy efficiency works.
This issue is particularly acute on lease renewals under the 1954 Act, where landlords can face an uphill challenge in seeking to introduce such provisions by reference to “reasonable modernisation”.
Changes to EPC methodology are adding further complexity following revisions introduced in June 2022. In particular, buildings reliant on gas-based systems may achieve lower ratings on reassessment, making it more difficult to plan works, agree lease terms and assess future risk with confidence. A further Government consultation is also underway, including proposals to update EPC metrics.
A growing focus on operational energy performance
There is increasing recognition that EPC ratings do not necessarily reflect a building’s actual energy performance in use. As a result, greater emphasis is being placed on operational energy performance, with a focus on real world energy usage and carbon output. This is supported by more consistent tracking and analysis of operational data. This is particularly relevant in the context of investor requirements and occupiers’ decisions on whether to occupy or remain in a building.
In legal terms, this is starting to be reflected in enhanced metering and data sharing provisions, increased cooperation obligations between landlords and tenants and, in some cases, outcome focused approaches, for example targeting a particular operational performance rating as part of a development or letting strategy. This represents a shift away from proxy measures towards real world outcomes, supported by greater transparency through the disclosure of operational energy performance.
Green lease clauses
Against this backdrop, green and sustainability linked provisions are now included in almost all modern lease precedents, including Practical Law precedent leases and the Model Commercial Lease suite of documents. The Better Buildings Partnership’s Green Lease Toolkit (updated in early 2025) continues to influence the market, offering a range of provisions, from “light” to more ambitious “dark green” clauses.
In practice, we are seeing a high level of acceptance of “light green” provisions, which typically include matters such as cooperation to improve environmental performance, participation in green building forums, the use of reasonable endeavours to procure sustainable materials or limit waste in alterations, compliance with environmental policies and the sharing of operational energy data.
By contrast, more ambitious obligations - such as requirements to carry out improvement works or procure electricity from renewable sources - remain relatively uncommon and, where accepted in principle by tenants, are typically subject to significant caveating or cost protection.
A key challenge remains the so called “split incentive” between landlords and tenants, where one party bears the cost of improvements while the other benefits, reinforcing the importance of effective lease drafting and collaboration.
Overall, the trend is evolutionary rather than transformative, but the direction of travel is clear.
Development, construction and planning considerations
Net zero is having a growing influence on the development of commercial property. While much of the current regulatory framework focuses on operational performance, there is increasing attention on the embodied carbon associated with redevelopment, construction and materials.
This is reflected in rising scrutiny within the planning system of proposals involving demolition and rebuild, particularly where lower carbon alternatives such as retrofit may be available. Recent high-profile decisions, such as the refusal of planning permission for the proposed Marks & Spencer redevelopment on Oxford Street, have brought these issues into sharp focus, illustrating the growing importance of embodied carbon in planning decision making.
However, the policy position remains evolving, and the planning system does not yet establish a presumption in favour of retrofit over redevelopment, with decisions continuing to turn on a broader balance of planning considerations.
These themes are also feeding through into development and construction practices. In particular, this is reflected in:
- greater scrutiny of materials and construction methods;
- increased use of sustainability linked targets in development agreements and construction contracts; and
- growing focus on whole life carbon, including the long-term performance and adaptability of buildings.
Although there is not yet a comprehensive regulatory framework for embodied carbon, both the policy direction and underlying market expectations are evolving rapidly. Planning authorities, developers, funders and occupiers are increasingly focused on delivering buildings that are not only efficient in operation, but also designed and constructed with net zero objectives in mind.
Practical implications
These developments are driving a number of clear changes in the commercial property market:
- lease drafting is becoming more detailed and technical, particularly around EPC compliance and sustainability provisions;
- increased focus on whole life carbon in development and planning decisions;
- negotiations are more and more focused on future-proofing assets against regulatory change;
- operational energy data is becoming increasingly important, alongside EPC ratings;
- landlords are under growing pressure to invest in improving building performance; and
- there is a growing risk of obsolescence for poorer performing assets, with some sectors (particularly office space) already seeing signs of a two-tier market emerging.
Taken together, these trends reflect a market that is increasingly focused on performance, transparency and long-term asset resilience.
What should clients be doing now?
Whether you are a landlord, developer or tenant, there are a number of practical steps to consider now. These include:
- reviewing EPC ratings across portfolios, including expiry dates and underlying assumptions;
- developing a clear strategy for improving building performance over time;
- ensuring lease documentation allows sufficient flexibility to carry out future energy efficiency works;
- considering how EPC related risk and cost should be allocated in transactions;
- factoring whole life carbon into development and asset strategies; and
- tracking energy data and using it to inform decision making and drive more efficient operational practices.
Many of these steps are most effective when taken collaboratively, with cooperation between landlords, occupiers and other stakeholders playing an important role in achieving meaningful improvements.
Uncertain policy landscape
There remains an ongoing debate as to the pace, cost and policy architecture of the transition to net zero, particularly in the context of broader economic pressures and energy pricing. Although the UK’s net zero framework remains in place, some political actors have publicly argued for more fundamental change, including “scrapping net zero” or repealing elements of the current legislative framework.
In practice, this creates uncertainty not only around the timing and implementation of specific measures, but also (albeit less predictably) around the longer-term direction and structure of the policy framework. For commercial property stakeholders, this underlines the value of maintaining flexibility in asset strategy and contractual drafting.
Conclusion
While there remains some uncertainty around the timing and detail of future regulation, and debate as to the longer-term policy framework, net zero continues to have a tangible impact on the commercial property sector.
The market response to date has focused on improved EPC performance, more detailed lease drafting and a growing emphasis on operational energy. As regulatory requirements and market expectations continue to evolve, these themes are likely to become more pronounced, even if the pace and direction of policy development remain subject to ongoing debate.
If you would like to discuss how these issues may affect your portfolio or transactions, please contact our Real Estate team.
