From the start of April this year new Minimum Energy Efficiency Standards (MEES) will come into force making it unlawful for a landlord to let a property that has an EPC rating below level E.
The new Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015, take effect from 1 April 2018 and, while they affect both domestic and non-domestic properties, we’ll be looking at what they mean for commercial landlords, and what can be done now to ensure compliance.
If you are a commercial landlord, and have a lease of commercial property for more than 6 months and less than 99 years, you should:
- Review your property portfolio and identify those buildings that have a an EPC rating of F or G;
- Establish whether any of the available exemptions (see below) apply to the property;
If no exemptions apply, consider what energy efficiency improvements are needed to bring the EPC rating up to minimum level E or higher. A good starting point is the
- Recommendation Report that accompanies the EPC as this will be specific to the property and will suggest what improvements can be made and the expected efficiency return for implementing those improvements;
- Ensure that lease terms permit works for improving energy efficiency throughout the term and how the costs of those works will be dealt with.
It’s worth noting, properties that do not require an EPC will not be caught by the new regulations. MEES will apply to the grant of a new tenancy to a new tenant, as well as to renewal of existing tenancies. Furthermore, from 1 April 2023, MEES will apply to all tenancies, including existing tenancies.
There are exemptions and MEES will not apply in the following situations:
- The property doesn’t require an EPC;
- Tenancies of 6 months or less;
- Tenancies of 99 years or more;
- In the preceding five years the landlord has attempted to carry out works to bring the property up to level E standard but the tenant has refused to consent to the relevant energy efficiency works being carried out;
- Lack of third party consent to undertake the required works;
- Within the preceding five years the landlord has obtained an independent report from a surveyor that states that making the improvements to the energy rating would result in a reduction of more than 5% in the market value of the property.
This list is not exhaustive and that there are a number of temporary exemptions. Landlords should take care to check the full extent of exemptions available at the time. Landlords should also be aware of the requirement to register their exemption with Trading Standards so they can be lodged on a central, public register.
What are the risks of failing to take action?
Apart from the commercial risks of reduction in capital value, rental value, and empty properties, the enforcement of the regulations carry substantial penalties. Enforcement in relation to commercial property will be carried out by the local weights and measures authority (Trading Standards) who will issue an enforcement notice. It will be up to the enforcement authority to decide whether to issue a financial penalty, a publication penalty or both.
Financial penalties will depend upon the length of the breach and the rateable value of the property, but the minimum will be £5,000, with a potential maximum of £150,000. A publication penalty can be just as damaging as it involves publication of the landlord’s name and address on a public register for up to 12 months.
In the wider context, lenders are also preparing for the changes and will be actively reviewing their lending criteria. If a property is not compliant, it may not be considered good security.
If you still need to take action, now is the time to do so. As an astute landlord, you should be doing everything you can mitigate your exposure to liabilities and costs when the regulations come into force.
If you wish to discuss any of the issues raised in this article please contact Rebecca Dixon, an Associate, on 0117 974 3283 or firstname.lastname@example.org author of the article.
The information provided in this article is for general information purposes only and does not constitute legal or other professional advice and cannot be relied upon as such. Any law quoted in this article is correct as at September 2017. Appropriate legal advice should be sought for specific circumstances before any action is taken.
Copyright © Murrell Associates Limited, September 2017.