MEES Regulations and commercial property
By Richard Hamilton, head of the property team at Davis Blank Furniss
The Minimum Energy Efficiency Standard (MEES), which came into force in England and Wales earlier this year, applies to private rented residential and non-domestic property and is aimed at encouraging landlords and property owners to improve the energy efficiency of their properties by a restriction on the granting and continuation of existing tenancies where the property has an Energy Performance Certificate Rating of F and G.
Properties are considered to be a major contributor to greenhouse gas emissions, and the UK hopes to meet its carbon reduction targets for 2020 and 2050.
One of the most common questions that I get asked is: ‘What are the implications of these regulations on commercial landlords?.’
The answer is simple: The MEES regulations restrict commercial landlords from granting leases for properties which fall below the minimum energy efficiency standard.
Commercial landlords will also be prohibited from continuing pre-existing leases, after 1st April 2023, if the property falls below this standard.
There are also financial implications as the “seven-year payback” test is being used as a measure of proportionality when deciding whether landlords are required to fund the costs of bringing their properties up to standard.
In simple terms, the test measures the costs of installing the required equipment, against the amount which would be saved in energy bills, over a seven-year period.
If there is no balance, the improvement will not be considered to be a ‘relevant energy efficient improvement’.
However, there are some exemptions to making energy efficiency improvements, for example: If the property is already considered to be “energy efficient” and has an EPC rating between A and E; if the market value of the property will fall by more than 5% if such improvements are made.
In this case, an independent valuer will be required to draft a report to this effect. And if consent is required from the tenant of the property and the tenant withholds their consent for such improvements to be made.
There are also temporary exemptions from making improvements.
In situations where a person becomes a landlord for a property that is already let, the requirement for improvements can be postponed for up to six months.
Exemptions must be registered on the central government PRS Exemptions Register. Such exemptions are only valid for a period of five years and cannot be transferred to a new landlord.
As well as enforcement action in the form of significant fines of up to £150,000, there are other implications which could negatively impact a commercial landlord.
It is likely that the market value of a sub-standard energy-efficient property would fall due to purchasers wanting to purchase energy compliant premises.
This could, therefore, negatively impact the market value of a non-energy-efficient property.
My advice is to first: Conduct an audit of your properties to identify which properties fall below the energy efficiency standard; then ensure the EPC assessments for each property are correct; and finally, draw up a list of actions to achieve the minimum required standards.
