Changes to the minimum energy efficiency standards for commercial properties
What are the changes to the minimum energy efficiency standards (MEES)? We look at everything landlords need to know, including practical next steps. From 1 April 2023, landlords cannot continue to lease or sublet their commercial properties where the property has an Energy Performance Certificate (EPC) asset rating of F or G.
What are the minimum energy efficiency standards?
Introduced in 2015, the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 apply to all commercial properties that require an EPC and have a current valid EPC. The regulations procure that landlords cannot grant a lease of or sub-let commercial premises with an EPC rating below E, unless:
- a) they have carried out all possible cost-effective energy efficiency improvement works; or
- b) an exemption applies.
The scope of the MEES regulations is largely ambiguous. At present, MEES do not apply to:
- buildings which are not required to have an EPC including industrial sites, non-residential agricultural buildings with a low energy demand, temporary properties, places of worship, standalone buildings with a total useful floor area of less than 50m2 and certain listed buildings (only where complying with MEES would unacceptably alter their character and appearance);
- buildings where the EPC is over 10 years old or where there is no EPC;
- tenancies of less than 6 months (with no right of renewal); or
- tenancies of over 99 years.
A rating of below E is considered sub-standard.
Exemptions
A landlord may be able to claim any of the following exemptions:
- Where it is determined by an independent energy assessor that the relevant energy efficiency improvements cannot be obtained, or can only be obtained with unreasonable conditions.
- Where an independent surveyor confirms that carrying out the required energy efficiency works would reduce the market value of the property by more than 5% causing devaluation.
- Where the cost of improvement works required by MEES are not covered within 7 years by the energy savings brought about as a result of the works (known as the 7 year payback test).
- Where consent of a third party (e.g. a superior landlord or planning authority) has been refused despite using reasonable efforts to try and obtain a consent, or consent has been given with conditions that cannot be complied with.
- Where a new owner purchases a property rated F or G which is subject to existing tenancies, the purchaser can register a 6 month new owner exemption in order to carry out the energy-efficiency works needed to bring the EPC rating to an E or above.
Any and all exemptions claimed must be registered on the government Private Rented Sector (PRS) Register, along with all supporting documentary evidence. Exemptions generally last for 5 years post-claim, but can be re-claimed after the 5 year period. It is important to note that exemptions do not pass to future owners on the sale of a property.
Penalties for non-compliance
The enforcement of the MEES regulations falls within the remit of local trading standards. The Local Weights and Measures Authorities have the power to impose financial penalties which are set according to the property’s rateable value and carries a maximum charge of £150,000.
The penalty for lettings in breach of the MEES Regulations for a period less than 3 months will be equivalent to 10% of the property’s rateable value, carrying a minimum financial penalty of £5,000 and a maximum of £50,000. For all lettings in breach for a period of more than 3 months, a penalty of 20% of the property’s rateable value will be imposed, carrying a minimum financial penalty of £10,000 and a maximum of £150,000. There is, of course, a reputational risk that comes with non-compliance. The validity of the lease will remain unaffected in any instance of non-compliance with the MEES Regulations, and will remain wholly enforceable by either party.
Practical points to consider for Landlords
- If there is an EPC, check its asset rating.
- Consider whether the property actually needs an EPC.
- Have any alterations been carried out triggering the need for an EPC rendering the old one invalid?
- Consider whether any of the exemptions apply.
- Carry out energy assessments as required to check whether the current EPC ratings are correct.
- Review existing leases to understand how lease terms, break dates, renewal dates and planned refit periods fit with the MEES requirements since 1 April 2023 and what action (if anything) may be required now.
- Consider including sustainability clauses and provisions dealing with EPCs and MEES on new lettings.
Future Considerations and Next Steps
The Government’s plan is to achieve net zero by 2050 and this is reflected in the target to bring the minimum EPC rating, for landlords letting commercial properties, from an E to a C by 2027 and shifting further to a B rating by 2030.
We would be pleased to assist with any MEES enquiries you may have. Please contact us or another member of the Blake Morgan Real Estate team to discuss.
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