The MEES Regulations will now impose a minimum energy efficiency standard on private rented property.
The minimum energy efficiency standards (‘MEES’) were introduced in March 2015 by the Energy Efficiency (Private Rented Property) Regulations 2015 (‘MEES Regulations’). The MEES Regulations originated from the Energy Act 2011 in a bid to improve the energy efficiency of both residential and commercial leasehold property in England and Wales. These rules were introduced to implement EU directive and aid the Government in its commitment to reducing carbon emissions to ‘close to zero’ by the year 2050.
At present, an Energy Performance Certificate (‘EPC’) will rate the energy efficiency of a property from A-G, with those buildings rated F or G being the worst performing. The MEES Regulations now impose a minimum standard which requires privately rented property, both commercial and residential, to have an EPC rating of E or above before it can be let. With an estimated 20% of commercial properties currently ranked as F or G rated buildings, the MEES Regulations are having, and will continue to have, a significant impact upon landlords who are now responsible for making energy efficiency improvements at their own expense.
Do the MEES Regulations apply to all types of property?
Whilst the MEES Regulations apply to the vast majority of commercial and residential property, there are certain types of property which are exempt from the requirements:
- Buildings which are not required to have an EPC, such as industrial sites, workshops, agricultural buildings with a low energy demand, certain listed buildings and temporary buildings;
- Buildings where the EPC is over 10 years old or where there is no EPC (however, an EPC will be required upon granting a new tenancy, at which point the MEES Regulations will apply);
- Tenancies of less than 6 months; and
- Tenancies of over 99 years.
All other types of leasehold property will be caught by MEES.
Key Dates
Residential Property
- Since 1 April 2018, a landlord should not grant a new tenancy or extend or renew an existing tenancy of a residential property if it has an EPC rating of F or G, unless the landlord registers an exemption.
- From 1 April 2020, a landlord should not continue to let a residential property if it has an EPC rating of F or G, unless the landlord registers an exemption.
Commercial Property
- Since 1 April 2018, a landlord should not grant a new tenancy or extend or renew an existing tenancy of a commercial property if it has an EPC rating of F or G, unless the landlord registers an exemption.
- From 1 April 2023, a landlord should not continue to let a commercial property if it has an EPC rating of F or G, unless the landlord registers an exemption.
What are the exemptions?
Where a property is caught under the scope of the MEES Regulations, the landlord may nevertheless let out an F or G rated property if an exemption applies. Some of the main exemptions are as follows:
- ‘The Golden Rule’: Where an independent assessor determines that all relevant energy efficiency improvements have already been made to the property, yet the property is still sub-standard with an EPC rating F or G;
- Devaluation: Where an independent surveyor determines that if the relevant energy efficiency improvements are carried out, this would reduce the market value of the property by more than 5%;
- Third Party Consent: Where the landlord requires consent to make improvements (for example from a tenant, superior landlord or planning authority) and this consent has been refused, or has been given subject to conditions with which the landlord cannot reasonably be expected to comply.
Where a valid exemption applies, this exemption must be registered by the landlord on the PRS Exemptions Register. Exemptions are valid for five years, after which they will need to be re-assessed. Also, if the landlord chooses to sell the property, the buyer must register a new exemption.
Penalties for non-compliance with the MEES Regulations:
Where a sub-standard property is let in breach of the MEES Regulations, this will not affect the validity of the tenancy and the lease will still remain valid and enforceable. However, landlords may be liable to civil penalties imposed by the Local Weights and Measures Authorities (usually as local authority’s trading standards department) as follows:
- For properties in breach of MEES being let out for less than 3 months, the fine will equate to 10% of the property’s rateable value, subject to a minimum penalty of £5,000 and a maximum of £50,000.
- For properties in breach of MEES being let out for 3 months or more, the fine increases to 20% of the property’s rateable value, subject to a minimum penalty of £10,000 and a maximum of £150,000.
If they fail to comply with the MEES Regulations, landlords also run the risk of having their details published on a public ‘name and shame’ register, which may lead to adverse publicity and deter prospective buyers or tenants. Furthermore, landlords may also find that the value of their property drops or that tenants are only prepared to pay a reduced rent unless improvement works are carried out.
MEES Regulations from a tenant’s perspective
Landlords will undoubtedly suffer the biggest losses as a result of these restrictions. Not only will they incur the financial expenditure of carrying out the works necessary to upgrade the EPC rating, but they will also suffer a loss of income where non-compliant properties remain untenanted. Whilst some landlords may wish to sell sub-standard property in an attempt to avoid the regulations, the market value of F or G rated property will no doubt decrease.
However, it is not just Landlords who will experience the implications of MEES. These changes also have potential to have a fundamental impact upon tenants:
Subletting
Where a tenant wishes to sublet a property, the requirement to bring the property up to an E rating is then transferred onto the tenant. The lease may also require that the tenant (now acting as landlord), to obtain consent from the superior landlord before any necessary improvements are carried out. This then raises potential uncertainty as to how responsibilities and costs will be apportioned between the parties. On the other hand, where a tenant wishes to assign the property, the requirement to comply with the MEES Regulations will remain with the original landlord.
Access to carry out works
As mentioned above, from 1 April 2020 (for residential property) and from 1 April 2023 (for commercial property) landlords should not continue to let F or G rated property. In order to carry out the necessary works, the Landlord may require access to the premises. However, unless the lease grants such a right of access, the landlord will have to rely on informal arrangements with the tenant allowing them to enter. Depending on the extent of the work that needs to be done, this could cause significant disruption to the tenant, as well as their business if the property is used for commercial purposes.
Costs and lease premiums
Although it is the landlord who will incur the costs of the relevant improvements, this will no doubt lead to complex lease negotiations as landlords attempt to pass such costs back onto the tenant through the lease. For example, the landlord may try to include a provision in the service charge to cover the costs of any necessary works. This would amount to an unfair expense to tenants, particularly those on short term leases, who are effectively paying to increase the property’s value and letting prospects.
Key points to remember for Landlords
As the MEES Regulations only came into force last year, it is difficult to predict what the long term implications of these changes will be. Nevertheless, in the meantime, Landlords should bear in mind the following key points to avoid unnecessary enforcement action:
- Future trigger dates: From 1 April 2020 (for residential) and 1 April 2023 (for commercial), Landlords will have to ensure that any properties they are currently letting out have an EPC rating of at least E. Therefore, all landlords should be beginning to review their existing EPCs to ensure improvement works are carried out before these dates.
- Registering an exemption: Where one of the exemptions mentioned above applies, it is crucial that the landlord applies to register this on the PRS Exemptions Register. Otherwise, they will still be liable to penalties.
- No legal obligation: The MEES Regulations do not impose a positive obligation upon landlords. Leases of F or G rated properties will still be valid and enforceable. The primary incentive to comply with MEES is to avoid hefty fines, bad publicity and loss in rental value.
- Lease drafting: These new changes may encourage landlords to introduce new provisions into their standard leases to facilitate the carrying out of any energy efficiency improvements. However, landlords should take caution when including particularly onerous clauses in leases, as they may decrease the property’s rental value or deter potential tenants.
Key points to remember for Tenants
Meanwhile, tenants should take into account the following:
- Subletting shifts responsibility: the tenant will now become the landlord and thus becomes responsible for complying with the MEES Regulations.
- Access: Tenants should review their lease terms to check whether they grant the landlord access to carry out works and if so, negotiate with the landlord to minimise disruption.
- Costs: Tenants should carefully examine their leases to ensure they are not liable to contribute towards the cost of any works. Tenants may want to protect themselves further by including a clause which clearly states they will not be responsible for the cost of any energy improvements.
For more information on the topic, please contact a member of our Property team.
