Attention Landlords: Changes to MEES Regulations – What You Need to Know
From 1 April 2023, it will be unlawful for a landlord to continue to let a commercial property with a sub-standard Energy Performance Certificate (EPC) rating, unless a valid exemption has been registered. Landlords can be fined up to £150,000 if they breach this regulation. To help you prepare for these changes, Paul Bramall, commercial property expert, shares his advice.
Recap of the existing and new rules
An EPC must be provided prior to a sale or letting (subject to some limited exceptions). Failure to obtain/provide an EPC prior to a sale or letting is subject to a penalty charge of 12.5% of the rateable value of a building – up to a maximum of £5,000 for a commercial property.
The MEES (Minimum Energy Efficiency Standard) Regulations state a property is “Sub-Standard” where it has a valid EPC with a rating of F or G (although note the government plan to review this E benchmark upwards)
After 1 April 2018, and where the MEES Regulations apply, a landlord of a Sub-Standard property should not grant a new lease without a valid exemption.
From 1 April 2023, and where the MEES Regulations apply, a landlord of a Sub-Standard property should not continue to let that property without a valid exemption.
If you grant a lease or continue to let a property in breach of the above requirements, you are liable to a fine of up to £50,000 if the breach continues for less than 3 months and up to £150,000 if the breach is continuing for more than 3 months.
MEES Regulations and your property
Is the property Sub-Standard?
It will be if it has a valid EPC with a rating of an F or G.
Do the MEES Regulations apply to your property?
There are some types of property, lease and landlord to which the MEES Regulations do not apply and there is no need, in these cases, to register anything on the Exemption Register. We would need to consider this on a case-by-case basis. In most case the MEES Regulations will apply and you may be required to carry out energy efficiency improvements to ensure the property is no longer Sub-Standard.
Will the proposed energy efficiency work qualify as “relevant energy efficiency improvements”?
Certain works do not qualify and therefore may not need to be carried out (including a rule that, broadly speaking, if the cost of the works are greater than the expected value of savings on energy bills that the works should generate over a period of 7 years then the landlord may have a legitimate reason not to carry out the works). There are strict requirements for this test and an exemption should be registered on the Exemptions Register.
Have all relevant improvements been made (or can you show it is not possible to make any relevant improvements) and the property still remains Sub-Standard?
It may be possible to register an exemption for 5 years.
Have you been unable to secure consent for the required works?
If a landlord is unable to obtain consent from the tenant (or another third party) to carry out the required works, they may be able to register a temporary exemption;
Can you show the relevant works would de-value the property?
If a landlord can obtain a report by an independent surveyor that states the relevant energy efficiency improvements would result in a reduction of 5% or more in the market value of the property, you may be able to register a temporary exemption.
Have you just acquired a Sub-Standard property subject to an existing lease?
If so, you can apply to register an exemption for 6 months to allow you to carry out the necessary works.
What do landlords need to do?
Landlords should urgently review their portfolio to see if any let properties have an EPC rating of less than E. If they do, you need to consider carrying out any necessary energy improvement works to improve the EPC rating of the property or registering a valid exemption before 1 April 2023.
We encourage you to speak with an EPC assessor or our commercial property experts who are on hand to deal with any questions you might have about MEES and the upcoming changes.