The UK commercial property sector is set for a year of significant change in 2023, as landlords and tenants alike deal with the ongoing impact of the COVID-19 pandemic, changing work patterns and a renewed focus on sustainability. One of the most significant shifts for landlords will be the increasing emphasis on sustainability and green building practices, which are set to become a legal requirement for commercial buildings from 2025.

Those who fail to adapt to these changes risk large fines and being left behind in a market where sustainability is becoming an essential consideration for businesses and investors alike. Understanding the new regulations and adapting to the changing demands of tenants will therefore be critical for landlords looking to thrive in the years ahead.In the following article, we examine what lies ahead for the UK commercial property sector in 2023 and delve into the changes that investors and developers are implementing to meet the evolving requirements for businesses and tenants.

What is commercial property and why do its legalities matter?

Commercial property includes any building or piece of land that is used for business purposes and the generation of profit. This includes (but is not limited to) a wide variety of properties such as:

• Offices
• Warehouses
• Shops
• Restaurants and bars
• Hotels
• Farmland

Commercial property plays a key part in the functioning of many businesses and transactions. Business premises require the investment of significant amounts of capital and are accompanied by various costs and liabilities, so it is crucial that any legal issues that arise are dealt with efficiently and diligently.  

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How will net zero goals impact commercial property this year?

The UK Government's net-zero goals aim to achieve zero carbon emissions by 2050 and will have a significant impact on the commercial property sector in 2023. Several energy efficiency rules are already in place, including the Energy Performance Certificate (EPC) and the Minimum Energy Efficiency Standards (MEES), which require landlords to ensure their commercial properties meet certain energy efficiency standards.In addition to these regulations, the Energy Savings Opportunity Scheme (ESOS) requires large organisations to undertake energy assessments every four years to identify energy-saving opportunities in their operations, including commercial properties.To meet its net-zero targets, the Government is expected to introduce further regulations. For instance, commercial buildings may have to meet minimum energy efficiency standards by 2030 and achieve net-zero carbon emissions by 2050. Landlords must ensure their commercial properties have an EPC rating of E or above, and sub-standard properties cannot be let. Non-compliance could result in a financial penalty of up to 20% of the property's rateable value. As the drive towards decarbonisation gains momentum, landlords and tenants are increasingly entering into mutual agreements with the aim of reducing the environmental impact of buildings. These agreements typically include commitments to the use of sustainable materials and renewable energy sources and the adoption of recycling initiatives. To meet the growing demand for sustainable properties, developers are now focusing on constructing buildings that meet green certifications such as BREEAM and NABERS-UK. Despite this progress, smaller businesses outside of major cities may face financial challenges when upgrading to meet the 2030 requirements.Therefore, it is crucial for businesses to start thinking about their green future, not just in terms of immediate compliance but also with an eye to longer-term strategies to reduce their carbon footprint.

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What else is on the horizon for the commercial sector in 2023?

‍The UK Government has proposed the Levelling-Up and Regeneration Bill, which aims to promote economic growth and regeneration throughout the country. This bill was announced during the Queen's Speech in May 2021 and is currently undergoing the legislative process. It is set to bring changes to the commercial property sector in spring 2023. One aspect of the new bill, Part 8, will grant local authorities the power to conduct compulsory rental auctions of certain vacant high street premises. This means that local authorities will be able to take action to let the premises, including granting rights over land outside the premises, without the owner's consent.To be considered for auction, the premises must be located in a "designated high street" or "town centre" and have been unoccupied for a year or 366 days within the previous two years. The local authority must also consider the occupation of the premises for a high-street use, and how this would be of benefit to the local economy, society, or environment.Although the regulations to implement the Levelling-Up and Regeneration Bill are expected to take some time after the anticipated 2023 legislation, it is crucial for owners of high street retail premises to stay informed of these impending changes and take appropriate measures to prevent mandatory rental auctions.

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How else will the Levelling-Up and Regeneration Bill impact the commercial sector?

The bill has several key objectives, including levelling up underdeveloped regions of the country by providing investment in infrastructure projects to improve productivity and create employment. Additionally, it aims to support regeneration projects in towns and cities by simplifying planning processes for developers and providing funding for regeneration initiatives. The bill also aims to give local authorities more control over economic development and promote sustainable development to support the UK's transition to a green economy. Overall, the Levelling-Up and Regeneration Bill has significant potential to impact the commercial property sector by creating new opportunities for investors and developers through increased investment and support for regeneration projects.

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What other changes are we likely to see in the development of commercial property in 2023?

From November 2023, it is anticipated that planning permissions for most new developments in England will come with the condition that developers must achieve a net gain in biodiversity of at least 10%. This will require careful planning and due diligence on the part of developers, who will need to evaluate the costs involved in consultation with planning authorities to ensure the project remains viable and profitable.Developers may consider purchasing off-site credits if they are unable to provide sufficient biodiversity enhancements on-site, although it may take some time for a market to be established for such credits. Planning authorities may prioritise on-site provision in order to create more appealing living conditions for residents. It is important for developers to be aware of these new requirements and take necessary steps to ensure compliance with the regulations.

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Why do I need to keep up to date with law changes if I own commercial property?

As a commercial property owner, it is crucial to stay informed about changes to the laws and regulations that affect the commercial property sector. This is important for several reasons. Firstly, you have a legal obligation to comply with various regulations related to health and safety, environmental standards and planning requirements. Failure to comply with these regulations can result in financial penalties, legal action and harm to your reputation.

Secondly, changes to laws and regulations can have financial implications, such as increased costs or reduced property value. Additionally, it's essential to keep up to date with tenant requirements, such as disability access or health and safety standards. Thirdly, by staying informed about changes to relevant laws and regulations, you can identify and manage risks associated with commercial property ownership, such as safety hazards or planning restrictions. Overall, being aware of changes to laws and regulations is crucial for commercial property owners in order to ensure compliance, manage risks and identify opportunities for property enhancement.

Barnes Law has extensive knowledge and experience in the commercial property sector, which allows us to provide our clients with expert guidance through the intricate legal framework, whilst ensuring that their business requirements are fulfilled. To schedule a consultation to discuss your property issues, please feel free to contact us at +44 (0) 208 092 2700 or via email at info@barnes.law.co.uk.