With growing concerns about climate change, there has been an increased focus on improving the energy efficiency of our buildings. The introduction of the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (SI 2015/962), more commonly known as the “MEES Regulations”, eight years ago had the intention of improving the energy efficiency of private rented property in England and Wales. “MEES” is short for “minimum energy efficiency standard” and the current standard that a property should meet is an energy performance certificate (EPC) rating of “E” or above, unless the property is eligible for an exemption from the requirements. There are plans to increase this benchmark for privately rented commercial properties to a rating of “B” or above by 2030, however these plans are still under review. Amy Cushing, Licensed Conveyancer in our Commercial Property department, explains more here about the upcoming changes and what action landlords should be taking.
Whereas previously the MEES Regulations prevented a landlord of a commercial property from granting a new letting without holding an EPC with a rating of “E” or above or a valid exemption, from 1st April 2023 landlords will no longer be permitted to continue to let a commercial property without an EPC with a rating of E or above, unless there is a valid reason for not having one as permitted by the MEES Regulations.
Commercial landlords will therefore need to act immediately, taking the following actions:
Ensuring that your property is as energy efficient as possible will play a part in tackling climate change and creating a sustainable environment, and it may facilitate a number of other benefits such as increasing the value of the property to a potential tenant or investor. Given that these regulations will be coming into effect and seemingly will only become increasingly stringent over time, a tenant or investor is likely to be cautious about investing in a sub-standard property that will require considerable investment to bring up to standard. There is also a market for sustainable properties with some companies pledging to operate as sustainably as possible meaning that an energy efficient property would be in demand.
Although non-compliance with the regulations is not a criminal offence, if you choose to let the property or to continue an existing letting that has a sub-standard EPC rating without making the relevant improvements, and you do not have a legitimate reason for failing to make those improvements (which has been validly registered on the PRS Exemptions Register), then you will run the risk of enforcement action.
Enforcement action can include fines and adverse public exposure.
Penalties of up to £150,000 can be issued if you continue to let a substandard property for three months or more without a valid exemption, and the level of the fine issued would depend on the type of property involved and how long you have been in breach of the regulations. Where there has been a non-compliance for three months or more, the penalty would be the greater of £10,000 or 20% of the rateable value of the premises up to the £150,000 limit. Given that these penalties can apply to each lease that a landlord grants, the fines can be particularly onerous if multiple leases of a building have been granted without the relevant EPCs, and the potential ramifications of this should therefore be considered carefully.
There is the possibility that a landlord who has breached the regulations may be listed on the public part of the Private Rented Sector Exemptions Register, thereby causing you reputational damage.
Finally, if a potential investor realises that the property does not reach the minimum standards required, then the value of the property may decrease as they would need to factor in the cost of the works required to bring the property up to standard.
An EPC is not required if any of the following apply:
If any of the above apply, as a landlord, you should update the PRS Exemptions Register to avoid enforcement action.
Exemptions are time limited and won’t often last more than five years, meaning that landlords should be vigilant to ensure that there exemption remains valid.
Exercise caution as the MEES Guidance says that exemptions cannot be passed one from landlord to another. If you purchase a property that does not meet the standards required, then you will not be able to rely on the seller’s exemption. This will not automatically transfer to you, and you will need to satisfy yourself that the property is legitimately below standard and is eligible for an exemption before you negotiate and acquire the property. Once you have acquired the property, you will need to register your own exemption.
As outlined above, there are some instances in which a new landlord who has just acquired a property can register a six month exemption in order to give them time to bring the premises up to the required energy efficiency standard.
This is an important change for commercial property landlords and we are here to assist you. We can discuss the implications of the MEES Regulations and work with you to ensure that your leases include sufficient rights of access to enable you to comply with the regulations. Our expert lawyers can advise and assist you in drafting your commercial property lease to ensure that you are able to recoup some of the costs associated with the regulations via the service charge provisions in the lease. Additionally, we can also discuss wider environmental issues and sustainability issues with you, including ‘green lease drafting’. A green lease is an agreement between a landlord and their tenant to comply with specific responsibilities and obligations to minimise carbon emissions arising from the sustainable development, operation, and occupation of the property.
To discuss the changes with Amy or a member of the team, contact us today on 01794 328688 or email firstname.lastname@example.org.
This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice. All content was correct at the time of publishing and we cannot be held responsible for any changes that may invalidate this article.