The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 introduces the Minimum Energy Efficiency Standards ("MEES") which are to be implemented from 1 April 2018.
MEES will have an impact on all commercial properties that require an EPC
What are MEES?
MEES require commercial properties to have an energy rating of E or above. Therefore, if your property has a rating of F or G, it will be deemed to be unlawful under MEES.
The aim of MEES is to improve the energy efficiency of the UK's older buildings in a move to reduce harmful emissions and greenhouse gases.
MEES will affect both domestic and non-domestic properties however, this article will focus on non-domestic properties in the UK.
Are there any exclusions?
In short, the answer is yes.
MEES does not apply to the following:
Buildings that are not required to have an EPC (e.g. industrial sites, workshops, non-residential agricultural buildings with low energy demand, certain listed buildings and temporary properties such as holiday lets);
Buildings where the EPC is over ten years old or where there is no EPC;
Tenancies of less than six months (with no right to renew); and
Tenancies with a term of over 99 years.
Subject to the above exclusions, all Landlords must endeavour to make cost effective improvements to their properties to increase the energy rating to at least an "E".
However, in the following situations a Landlord can apply for an exemption:
If the Landlord has made all the relevant energy efficiency improvements or there are no relevant energy efficiency improvements that can be made due to the fact the costs associated with the improvements will not pay for themselves within seven years (through energy savings) or if the energy savings will not be equal to or greater than the costs of implementing the changes in the first place (The Green Deal's Golden Rule);
If the Landlord requires consent to carry out works and such consent is being withheld by the Freeholder or the Tenant; and
Where improvements to increase the energy efficiency would result in devaluing the property by more than 5% (according to an independent surveyor).
If a Landlord wishes to rely on any of the above exemptions, he or she must register the exemption on the Private Rented Sector ("PRS") Exemptions Register. The exemptions are valid for five years.
Failure to register an exemption will amount to non-compliance.
Failure to comply:
Landlords that fail to comply with MEES face financial sanctions.
The financial punishments are to be based on the length of non-compliance and will increase in accordance with the rateable value of the property. It is envisaged that the maximum penalty for non-compliance will be up to £150,000.
In addition, a publication penalty could also be issued and registered on the PRS Exemptions Register which will contain:
The Landlord's name (if not an individual);
Details of the breach;
Address of the property where the breach has occurred; and
Amount of financial penalty.
It is important to note that, non-compliance with MEES does not affect the validity or enforceability of any provisions of a tenancy.
When will MEES affect your property?
From 1 April 2018, MEES will affect all new leases, lease renewals and lease extensions.
From 1 April 2023, the MEES regulations will be extended to catch all leases. A Landlord must not continue to let their property from this date unless the efficient rating is at least "E". This will cover situations where leases are already in place but have continued to run (i.e. there has been no extension or renewal prior to 1 April 2023).
Things to consider
Carry out an energy assessment to see if your EPC rating is correct.
Review any leases:
for renewal dates as from, 1 April 2018, you will not be able to renew leases unless your property complies with MEES;
to assess your ability as the Landlord to carry out works, as you may face restrictions on entering the property to carry out the relevant improvement works;
for service charge provisions as these may restrict your ability to increase service charges to incorporate costs of carrying out the improvements; and
for break dates as, from 1 April 2018, you will not be able to grant a new lease unless your property complies with MEES.
Take professional advice.
If you require further guidance on this issue, please contact us at info@legrossolicitors.com