Associate solicitor Gemma Smith, in our Commercial Property team, discusses the new Minimum Energy Efficiency Standards (MEES) which will be in force from April 2018.
The Minimum Energy Efficiency Standards (MEES) as set out in the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 will be in force from 1 April 2018.
These regulations prohibit landlords from granting a tenancy (even a renewal to an existing tenant) if the property has an Energy Performance Certificate lower than an E.
Not a landlord; don’t think this applies to you; keep reading..!
Myth buster
Tenants and property owners – this is not something you can ignore. Even though the regulations only impose a duty on landlords, they are likely to impact on the value and saleability of your property as well as your ability to let (or assign, sub-let or renew your lease if you are a current tenant) the property in the future.
These regulations also apply to both residential and commercial property but the trigger dates vary (see below).
Many commercial lenders will no longer lend against a property with a rating lower than an E and it is suggested that residential lenders will soon follow suite. Therefore, even though there is nothing to prevent the sale of property with an F or G rating, value may impacted as the market will be restricted.
The requirements under the regulations are that, subject to certain exemptions:
- From 1 April 2018 commercial landlords may not grant a tenancy (even a renewal to an existing tenant) if the property has an Energy Performance Certificate (EPC) rating of F or G.
- From 1 April 2020 residential landlords will not be permitted to continue accepting rent from a tenant of a property which is already let if the property has an EPC rating of F or G. This applies to private individuals as well as institutional landlords.
- From 1 April 2023 commercial landlords will not be permitted to continue accepting rent from a tenant of a property which is already let if the property has an EPC rating of F or G.
If you wish to let property which falls below the minimum standard then you may need to carry out works to improve the energy efficiency of the property to (or beyond, to allow for future proofing) the required level. There is a mechanism to allow short term exemptions (of up to 5 years) in limited circumstances if: the necessary works would devalue the property by 5% or more; all possible cost effective improvements have been carried out (there is a complex test for this); the landlord is not able to obtain any necessary third party consent to the works.
If one of the above exemptions does apply then a detailed application will need to be made to apply for the exemption to be centrally registered on the Private Rented Sector Exemptions Register, this will be re-assessed at least every 5 years. Be aware that exemptions can be questioned and removed at any time and many lenders and purchasers are not seeing them as relevant. Very few exemptions have been registered to date.
The regulations only apply where there is a current lodged EPC for the property in question and also only where that EPC was legally required. An EPC is only legally required to be carried out prior to various transactions (including selling or letting) and following certain works and is valid for up to 10 years. The regulations do not add additional obligations as to when an EPC must be put in place (e.g. on a lease renewal). If an EPC is obtained voluntarily then that EPC will not bring the property within the Regulations but this position may be reviewed in the future.
Action to take
The first step for all property owners is to undertake an EPC audit of all of their properties. This may just be one property or several; if it is the latter we recommend setting up a spreadsheet for this exercise. If an EPC has been lodged for your property you will be able to find it online at:
- www.ndepcregister.com – for commercial properties
- www.epcregister.com – for residential properties
Once you have the EPCs for your properties, you will have the information to deal with the issue at hand. One thing to bear in mind is that due to changes in EPC rating at that time, EPCs carried out before April 2011 may be misleadingly high. This will be particularly relevant if you have a property with an EPC from that time with a low E rating. Some lenders are now demanding that pre-April 2011 EPCs be updated before they will reach a lending decision.
If your property does not have an EPC, it is worth bearing in mind that there is a difference between instructing a draft EPC and lodging an EPC so that it appears on the national database. A draft can be carried out so that you can check the current EPC rating of the property and this will be purely for your use. You will then have the opportunity to carry out improvement works before the EPC is finalised and formally lodged, though unless an EPC is legally required, there is no obligation to have the draft EPC finalised.
It is important not to carry out alterations and improvement works unless you know the impact they will have on the property. The software used to produce EPCs will now allow a draft EPC to be produced taking works into account (even for a completely new building) to ensure that the works will produce the desire energy rating.
It is not all doom and gloom – most buildings are fixable, particularly with new technology such as LED lights. This may also not be as expensive as you think it might be. Property owners are being encouraged to improve their buildings rather than try to apply for exemptions as this is the only permanent solution. The improvements made will likely reduce energy costs and therefore be cost-saving in the long term.
The time to act is now. Even if you do not need to take action for the April 2018 deadline the 2020 and 2023 deadlines will come around quickly. The easiest and most stress free time to improve you buildings will be well before those ‘sweeper’ deadlines are on the horizon.
Non-compliance may result in financial penalties of up to £5,000 for residential properties and up to £150,000 for commercial properties.
For further information or legal advice, please contact law@blandy.co.uk or call 0118 951 6800.
This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.
