In England and Wales, under the new legislation, from 1st April 2018 any commercial property that has an EPC of lower than an ‘E’ cannot be rented out to new tenants, or renew any existing tenancy contracts until at least an ‘E’ rating is obtained. From April 2023, MEES will apply to all existing commercial leases.
What is the minimum energy efficiency standard (MEES)?
The minimum energy efficiency standard (MEES) was introduced in March 2015 by the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015. The MEES Regulations originate from the Energy Act 2011 which contained the previous coalition government’s package of energy efficiency policies including the Green Deal.
Why is the government introducing MEES?
The built environment has been identified by government as a major contributor to Greenhouse Gas (GHG) emissions and thus poses a threat to the UK meeting its carbon reduction targets for 2020 and 2050. Government estimates that 18% of commercial properties hold the lowest EPC ratings of F or G. While Building Regulations ensure that new properties meet current energy efficiency standards, MEES will tackle the UK’s older buildings.
What are the penalties for non-compliance?
If a landlord continues to let a property in breach of MEES for up to three months, they will face a fine of 10% of the property’s rateable value, up to a maximum of £50,000. Letting out a non-compliant property for longer than three months will result in a fine of 20% of the property’s rateable value (capped at £150,000).
Are there any MEES exemptions?
There are some exemptions that which will enable a landlord to let, or continue to let, a substandard property:
- A property can be exempted if it is found that efficiency measures would decrease the property’s value by 5% or more
- ‘Seven-year payback test’: you will only be required to make energy efficiency improvements that have an expected payback of seven years or less. However, many measures are likely to meet the payback test. Lighting retrofit programmes, for example, or building control systems, can typically deliver savings well within the seven-year timeframe.
- A temporary exemption of six months can be granted to new landlords
The number of properties in England and Wales with Energy Performance Certificate (EPC) ratings of F or G estimated to be between 200,000 and 300,000.
Landlords who currently think their properties are compliant may find that upon renewal of the Energy Performance Certificate for their buildings that they are no longer compliant and therefore unable to rent out their properties.
What should you do to improve the EPC rating for commercial property?
If F or G rating, landlords need to take immediate action to improve rating.
- Contacting an expert in MEES to review your building or estates portfolio
- Getting updated EPCs for properties that could be at risk and in relation to new or renewal of tenancies to assess current and future risk
- Do not just consider the risk for properties with EPCs rated F or G; you should also include those rated E and even D in the analysis as upon renewal of the EPC the new rating could be worse
- Do not just rely on exemptions and be aware of the risk of inaccurate EPCs
- Plan your refurbishment projects taking due consideration of MEES
- Take a long-term approach, from 2023 this will also affect any existing tenancies and regulations could be tightened up in the future to capture buildings with other ratings
Landlords who introduce measures to improve the energy rating of buildings beyond the minimum requirement could enhance the relative rental value of their assets on the open property market.
Not only will a more energy efficient building will save on energy costs, it will also result in more comfortable buildings; while research has shown it also improves attention and productivity in schools and offices.
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