MEES: New energy efficiency requirements for commercial property

20 April, 2018

This week the trainee solicitor blog team caught up Tom Bushell, who has recently completed a seat in Corporate Real Estate. Tom has written about the Minimum Energy Efficiency Standards 2015, which come into force this month.

Overview

The MEES (Minimum Energy Efficiency Standards) 2015 may apply to any privately rented commercial property.

The regulations are designed to combat the least energy efficient properties by introducing a minimum Energy Performance Certificate (EPC) standard of E or above.

Landlords that do not comply with the requirements face fines of up to £150,000.

When do the regulations apply?

The regulations apply to all commercial property currently required to have an EPC, except for:

  • Tenancies for a term of 99 years or more.
  • Tenancies for less than 6 months with no right to renew.

The provisions come into force in two stages:

  1. From 1 April 2018 landlords will be in breach if they grant leases to new or existing tenants of properties carrying an EPC certificate F or G.
  2. From 1 April 2023 the regulations will apply to all existing tenancies. This will mean that landlords will be in breach if they continue to let a property rated F or G.

Where a property does not meet the necessary standard, the landlord must attempt improvements to raise the EPC rating to E or above.

Consequences of failing to comply

Landlords that fail to comply with the regulations within the first three months face a penalty of £5,000 or 10% of the property’s rateable value (whichever greater). Penalties are capped at a maximum of £50,000.

Where the breach has continued for more than three months the penalty rises to £10,000, or 20% of the rateable value, capped at £150,000.

In both instances the breach may also be published on a public register for at least 12 months.

The regulations specify that a tenancy agreement or lease is valid and enforceable even if it was granted, or continues, in breach of the regulations.

 Are any exemptions available?

There are three key exemptions available to landlords, but they only remain in force for 5 years. Landlords must register these, with relevant evidence, on the government PRS Exemptions Register.

The seven year ‘Golden Rule’

If landlords have carried out all relevant efficiency improvements and the building remains sub-standard, or if the improvements will not achieve a seven year payback.

Third party exemption

This applies where energy efficiency improvements  would require the consent of a third party, who refuses to give it. The exemption will not succeed if other improvement options remain available.

Property devaluation exemption

This final exemption is applicable where an independent surveyor determines that the improvements would lead to a decrease in market value by more than 5%.

Make sure you consider the MEES requirements early

Approximately 17.5% of UK properties currently have an EPC rating of F or G.

If they have not already done so, landlords should review the EPC ratings of their properties. Where the rating is F or G,  they should produce and implement a plan for making the necessary improvements.

Where landlords are granting new tenancies, they should consider who will bear the cost of any required efficiency improvements.