In January 2017 we reported on the new Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015, known in the property industry as Minimum Energy Efficiency Standards (MEES). The regulations will be coming into force from 1 April 2018 and whilst they affect both domestic and non-domestic properties, here we will be looking at what they mean for commercial landlords, and what can be done now to ensure compliance.
The overall position is that from 1 April 2018, where there is a lease of commercial property for more than 6 months and less than 99 years, MEES will apply and it will be unlawful for a landlord to let a property that has an EPC rating below level E. 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. It is also worth noting that from 1 April 2023, MEES will apply to all tenancies, including existing tenancies.
Are there any exemptions?
The short answer is yes. 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.
It should be noted that 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 should landlords be doing now?
- In the first instance landlords should review their property portfolio and identify those buildings that have a an EPC rating of F or G;
- Establish whether any of the available exemptions 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.
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.
Overall, the importance of early action cannot be overstated and the astute landlord will be taking steps to mitigate their exposure to liabilities and costs when the regulations come in next April.
If you wish to discuss any of the issues raised in this article please contact Rebecca Dixon, an Associate, on 0117 974 3283 or email@example.com 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.