Assessing the impact of the Heat in Buildings Bill on leases in the non-domestic sector

Scotland has legally binding targets to achieve net zero greenhouse gas emissions by 2045. Non-domestic buildings account for around 6% of Scotland’s total greenhouse gas emissions.

This report explores the impact of policy proposals consulted on in the Heat in Buildings Bill to require non-domestic buildings to end their use of polluting heating after purchase by 2045 or before.

The research examines Scotland’s non-domestic property market, the proportion of different building types and types of leases. This is supplemented by a review of comparable policies across Europe impacting non-domestic property leases.

Key findings

The non-domestic property market and its stakeholders in Scotland are hugely varied. As of June 2024, there are around 247,000 non-domestic properties in Scotland, with offices, factories and warehouses, and retail units making up a large proportion of these buildings.

This research highlights the complex arrangements within the non-domestic market and the difficultly in making major changes to these buildings, such as upgrading the heating system to a heat pump or connecting to a heat network. The most significant impact would be on landlords and tenants but there is a risk of impact in the wider market, including on non-domestic property prices and abandoned buildings.

Retrofit challenges

Some non-domestic buildings have already been retrofitted to achieve higher energy efficiency. The proportion of these buildings is small and insufficient to meet decarbonisation targets. Many businesses may want to decarbonise their buildings but would not know how to do so.

Lease arrangements: landlord and tenant(s) obligations

There was a lot of uncertainty and mixed responses on how cost and disruption would be managed by landlords and tenants. The impact will depend both on how the legislation is drafted and the specific clauses in each contract. It will also depend on the cost and complexity of the upgrade needed to meet the requirements.

Upgrade date

Having a requirement to upgrade all buildings by a certain date would be easier for stakeholders to comply with than a point of sale trigger. A requirement to upgrade after the sale of the property could have a particularly detrimental impact on tenants if the cost or disruption of upgrades is passed onto them.

Industry engagement

The non-domestic market is complex and cannot be easily compared to the domestic market in the design of policies. The design of the policy would benefit from close engagement with industry to minimise impacts on non-domestic building stakeholders and the market.

If you require the report in an alternative format, such as a Word document, please contact info@climatexchange.org.uk or 0131 651 4783.