As of 1 April this year, all new leases and lease renewals of commercial and residential properties in England and Wales now have to meet a minimum EPC rating of E to comply with the Minimum Energy Efficiency Standard (MEES).
Properties below this rating are now considered sub-standard in the regulations and deemed unfit to let to new tenants without a valid exemption.
From 1 April 2023, landlords will not be allowed to continue to let any commercial buildings on existing leases which have an EPC rating worse than E. For residential properties, landlords only have until 1 April 2020 before the Minimum Requirements must be met in relation to existing tenancies.
Paul Gibbon, commercial property director at Wake Smith, looks at what this means for landlords.
“The minimum energy efficiency standard (MEES) was developed to improve the energy efficiency of the UK’s older building stock, helping deliver carbon reduction targets for 2020 and 2050.
“The Building Regulations ensure new properties conform to current energy efficiency standards, while MEES focuses on the existing stock.
“Local Weights and Measures Authorities will enforce the MEES Regulations, and have the power to impose civil penalties.
“If a property is rented out in breach of MEES for less than three months, there will be a penalty of the greater of £5,000 and 10% of the property’s rateable valueup to a maximum of £50,000. For more than three months, the penalty increases to the greater of £10,000 and 20% of the rateable value, up to a maximum of £150,000.
“The lease between landlord and tenant remains valid regardless of the property being let in breach of MEES, or a penalty being imposed.”
MEES was introduced by the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015. At the time, the government estimated that 18% of commercial properties held the lowest EPC ratings of F or G.
Paul added: “In 2023 the Minimum Requirements will apply for all existing leases. Because of this, even if renewal is not expected imminently landlords should consider how they can bring the energy efficiency of their property up to the Minimum Requirements before this deadline.”
MEES does not apply when:
- Buildings are not required to have an EPC, such as non-residential agricultural buildings, industrial sites and workshops, some listed buildings, temporary properties.
- Tenancies are less than 6 months (with no right of renewal).
- Tenancies are more than 99 years.
“It is the landlords' primary responsibility to upgrade non-compliant buildings.
“Actions might include reviewing their portfolio to see which properties fall within the MEES.
“Energy assessments will have to be completed to renew EPC certificates and lease terms, break dates, and renewals dates need reviewing to see how they fit in with the timetable of MEES.
“The change also has implications for developers and lenders who need to make sure any new buildings meet the minimum standard, that they have considered and factored in the associated costs for improving the property’s energy efficiency, and any associated reduction in value of their security and the ability to let the building or loss of rental income.
“Lenders could also become subject to the MEES Regulations if they take possession of a property following a default, becoming the freehold investors or landlords.”
The MEES Regulations do provide lenders with the opportunity of lending to landlords who seek to improve their properties accordingly.
Paul added: “Many industry insiders remain concerned the regulations will only have their desired impact if the new standards are adequately promoted and aggressively enforced, to ensure all landlords comply.
“Experts argue the government can maximise emissions savings from the policy by confirming when the standard will ratchet up - a move that would provide commercial and residential landlords with an incentive to upgrade properties to an A to C efficiency rating as soon as possible.
“It remains to be seen when, and if, the first fines will be dished out for continuing to let inefficient properties, but signals are clearly being sent that landlords have no choice but to improve the efficiency of their properties as a matter of urgency.”
For further information please contact Paul Gibbon on 0114 224 2028 or at [email protected]
