The calculation
Note what the formula does not include: no discounting, no finance costs, no allowance for the capital value uplift, no carbon price. It is deliberately crude. That crudeness cuts both ways – it ignores real costs you bear, and it ignores real benefits you gain.
How it falls out in practice
We deliberately do not publish a priced worked example. Costs on commercial work move by multiples with access, occupancy and the condition of what you are replacing, and a specimen table gets read as a price list. What is worth knowing is the shape the answer takes, which is consistent across almost every building:
| Measure type | Cost relative to its annual saving | Usual verdict |
|---|---|---|
| Lighting, controls and air-tightness | A small multiple of the yearly saving | Comfortably inside seven years – required |
| Fabric within an existing build-up | A larger multiple, often near the line | Decided by your own tariff and quotations |
| Full plant replacement, external fabric, glazing | Many times the yearly saving | Usually outside the test – not required |
The pattern that matters: the measures most owners assume the exemption exists for are the ones that fail the test anyway, and the ones that pass are the cheap, unglamorous items they were often going to do regardless. So the answer is rarely "do nothing". It is far more often "do the inexpensive things, then look again".
If installing all three still leaves the building below the standard, the exemption you register is "all relevant improvements made" – not the payback exemption. The payback exemption is only for the case where nothing passes.
Each measure is tested separately
You cannot average a cheap measure against an expensive one to bring a package under seven years, and you cannot bundle a failing measure into a passing one. Each is assessed on its own cost and its own saving.
The practical consequence is that the answer is rarely "do nothing". It is far more often "do the three cheap things, which you were going to do anyway, and then look again".
The three-quote requirement
Cost must be established by three quotations from three separate installers, on headed paper, dated, specific to the measure and the property. Not budget pricing, not a cost model, not a single quote plus two telephone estimates.
Where these calculations fail
- Using a national average energy price instead of the tariff you actually pay. A building on a legacy fixed contract and one on current market rates produce very different paybacks from identical works.
- Taking the saving from the manufacturer. Enforcement authorities discount vendor figures. Use the EPC recommendation report or a measured calculation.
- Forgetting that the tenant pays the energy bill. The test is about the saving the measure produces, not about who banks it – but who banks it is exactly the lease question that decides whether the project happens.
- Testing measures that are not on the recommendation report and ignoring ones that are.
Test a measure against the seven-year threshold
Put in a cost and an annual saving and see immediately whether the measure is required, and what saving it would need to fall outside the test.
Common questions
How is the seven-year payback calculated?
Divide the installed cost of the measure by the expected annual saving in energy costs. If the result is more than seven, the measure is not a relevant energy efficiency improvement and you are not required to install it.
Do I need three quotes?
Yes, in practice. The regulations require the cost to be established by three quotations from different installers, on headed paper, for the specific measure at the specific property.
Is there a cost cap for commercial property?
No. Unlike the domestic £3,500 cap, there is no ceiling. A measure that pays back inside seven years is required however much it costs.
What energy price do I use?
The price you actually pay, evidenced by bills. Using a national average when your own tariff is very different is the most common way these calculations are successfully challenged.
Sources
- The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015, regs 27–28 – legislation.gov.uk
- Non-domestic private rented property: landlord guidance, chapter 4 – GOV.UK
Legislation is cited to the version in force at the date below. We publish a corrections policy and amend pages when the law changes.