In this article Charlotte Flanders, Solicitor in our Property team, looks at the upcoming MEES Regulations and makes several recommendations to landlords.
In a market that is becoming increasingly committed to ESG, it will be unlawful to continue to let commercial property with an F or G EPC rating from 1 April 2023 – even if the lease predates the regulations coming into force.
Under the Minimum Energy Efficiency Standard (MEES) since April 2018 it has been unlawful to grant a new lease and lease renewal of a commercial property that has an EPC rating below E unless the Landlord has made all possible cost-effective energy efficiency improvements (as set out in the MEES Regulations) or in the event that one of the exemptions apply.
However, from 1 April 2023 Landlords will be in breach of the MEES obligations if they continue to let a commercial property that has an EPC rating below E. This has a number of implications for consideration.
Points for Landlords & Tenants to consider
- It is important that Landlords quickly identify any premises that are F or G rated within their investment portfolios to consider whether any improvement works can be carried out and whether any of the exemptions apply (if so the Landlord should register those on the PRS Exemptions Register).
- Landlords should also identify any premises where there is no EPC certificate and obtain them where necessary to check the position.
- Both Landlord and Tenants should consider the lease and check who will pay for the improvements required, whether any other consents are required and whether the Landlord can access the premises to carry out the works and how any fit out may impact the position.
- Any new leases or renewal leases should be carefully drafted to deal with the challenges that the MEES Regulations pose not only now, but as the future trigger dates pass.
- Tenants should note that they are responsible under the MEES Regulations in the event that a sub-lease is granted.
Points for Purchasers and Investors of properties let
Whilst there is a short-term exemption for a period of 6 months for new owners, after that time has passed the buyer must ensure full compliance within the MEES Regulations.
Exemptions
In certain circumstances exemptions are available, it is important to note that the Landlord must register this exemption on the PRS Exemptions Register to avoid any enforcement action.
The main exemptions are set out below:
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Regulation 29 – MEES Regulations
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Where the Landlord has made all the ‘relevant energy efficiency improvements’ there are, or where there are no improvements that can be made and the property remains sub-standard then the Landlord can seek to apply this exemption.
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Regulation 31 – MEES Regulations
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For this exemption to apply the Landlord must require the consent of another party in order to carry out the works i.e. from a tenant or a lender. If the consent is refused or is granted subject to a condition which the Landlord cannot reasonably comply with then the exemption shall apply.
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Regulation 32 – MEES Regulations
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For this exemption the Landlord must demonstrate that an independent surveyor has assessed that the improvement works would result in a reduction of more than 5% of the market value of the property.
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These exemptions are personal and last no longer than five years.
It is important to note that leases for terms less than six months (unless there is an option to renew or extend the term beyond six months) or for more than 99 years are exempt from the regulations.
Enforcement, Penalties and an exception
Breaches of the MEES Regulations which last for a period of less than 3 months, then the party in breach will be liable for a fine of 10% of the rateable value of the property or £5,000 up to a maximum of £50,000.
In the event of a breach of the MEES Regulations for a period of more than 3 months then the party in breach will be liable for a fine of the higher of 20% of the rateable value of the property or £10,000 up to a maximum of £150,000.
Of course for some buildings it is not necessary to have an EPC for example, places of worship, temporary buildings, industrial sites that do not use a lot of energy etc. those are set out on the government website.
Looking to the future
Landlords should keep one step ahead of the MEES Regulations by following the recommendations set out in this article.
If any improvement works are required then Landlords should consider bringing the rating as high as the Landlord reasonably can, as the government is looking to raise the bar to ‘C’ by 2027 and then ‘B’ by 2030.
If you require any advice on MEES Regulation changes then please contact a member of our Property team.
