Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (SI 2015/962) introduced Minimum Energy Efficiency Standards known as "MEES Regulations".
Watch Mark Cornelius and Naomi Jones deliver a presentation on Energy Performance Certificates for commercial landlords attending the Handelsbanken Sustainability Event
A landlord of sub-standard commercial property (with and rating of F or G) must not grant a new tenancy on or after 1 April 2018 or continue to let the property on or after 1 April 2023 unless one of the of the following apply:
- The landlord makes sufficient energy efficiency improvements to the property, so that it is no longer sub-standard.
- The landlord can claim a legitimate reason not to do so, and this has been validly registered on the Private Rented Sector Exemptions Register.
WHAT IS CONSIDERED TO BE SUB-STANDARD?
At present, if the property has a valid EPC rating of E or better, it is not sub-standard and the MEES Regulations will not apply. However it is anticipated that a property will be sub-standard if it has a rating of below a B by 2030.
EXEMPTIONS:
There are a number of exemptions which can be claimed such as:
- Consent – a tenant or third party, whose consent, permission or approval is needed for a proposed energy efficiency improvement, has refused that consent.
- Devaluation – within the last 5 years the landlord has obtained a report from an independent surveyor which states that making the relevant energy efficiency improvement would result in a reduction of more than 5% in the market value of the property, or of the building of which it forms part.
- Improvements exemption – the landlord has made all the relevant energy efficiency improvements to the property that can be made however the EPC rating is still below E.
- New landlord – where a new landlord purchases a sub-standard property it may be given six months to comply.
- Pay-back test – if the cost of improvements would not be recovered through energy savings within a seven-year period.
WHAT HAPPENS IF A LEASE IS GRANTED OR CONTINUED IN BREACH OF THE MEES REGULATIONS?
A lease of sub-standard commercial property will still be valid and enforceable if, without compliance with the MEES Regulations it is:
- granted on or after 1 April 2018.
- continued, on or after 1 April 2023.
However, a breach could result in:
- Landlord being fined up to £150,000 per offence;
- A publication penalty -details of the breach are entered on the publicly accessible part of the Private Rented Sector Exemptions Register. This could result in negative publicity for the landlord and it may also act as a red flag to a prospective purchaser or tenant of the property.
HOW DOES THIS INTERACT WITH EPC REGULATIONS?
The guidelines suggest that an EPC is not required for a lease renewal as not classed as a sale or a rental.
Although clear from MEES Regulations that a landlord cannot continue to let the property where the EPC rating is F or lower, some ambiguity as to whether the landlord is required to actually required to commission a new EPC if there has been no valid EPC in the last 10 years. Could there be an option to postpone commissioning a new EPC where the property is currently let?
EPC guidance suggests the answer is yes however conflicts with MEES guidance which suggests that, if there is no valid EPC for a property, an EPC would be needed on reletting to the current tenant.
Keep an eye on whether this ambiguity is corrected in the future. For now may be safest to assume that a new EPC will be required.
CHANGES TO MINIMUM ENERGY EFFICIENCY STANDARDS
The UK Energy White Paper 2020 published by the Government confirmed that the future course for minimum energy efficiency rating for commercial properties will be an EPC rating of B by 1 April 2030.
On 17 March 2021, the Government published a further consultation which proposed including an interim minimum rating for commercial properties of C by 2027.
NEXT STEPS FOR LANDLORDS
- Review their property portfolios and identify any sub-standard properties
- Assume a new EPC will be required even where current letting continuing
- Check whether any of the exemptions apply to sub-standard properties
- If required, carry out the necessary energy efficiency works
- Plan ahead in line with the anticipated changes to MEES
- Consider rights of access in leases to facilitate changes and obligations on tenants to contribute towards costs.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.