The deadline for compliance with the Minimum Energy Efficiency Standard (MEES) is 1 April 2023. If you are a commercial property landlord you should act now to avoid a penalty.
The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 came into effect in April 2018 and prohibited landlords from offering new leases, or extending or renewing existing leases, for properties that have an Energy Performance Certificate (EPC) rating of F or G, unless an exemption applies.
From the 1st April 2023, Minimum Energy Efficiency Standards (MEES) will apply to existing tenancies, restricting the ability of landlords to continue renting out properties with an F or G rating.
Energy efficiency continues to be a hot topic and the current minimum standards are likely to change as the MEES regulations play a crucial role in the government’s goal to reach net-zero emissions by 2050. To meet this objective, the government is currently proposing that by 2030 all non-exempt commercial properties must have an Energy Performance Certificate (EPC) rating of B. However, as only 12% of commercial buildings currently meet this standard, the government has proposed raising the minimum EPC rating to C by 2027 in the interim.
For landlords to be compliant with MEES they must take swift action to bring their property up to an EPC rating of E before the 1st April deadline or register for an exemption.
For landlords who are unable to make the necessary improvements to make their properties MEES compliant, there are several options available. These exemptions permit a landlord to continue to rent out a sub-standard property without enforcement action being taken.
It is important for landlords to note that the exemptions must be registered on the PRS Exemptions Register for them to be effective.
The exemptions include:
1. The Seven-Year Payback Test
This exemption applies if the energy efficiency improvement works required by MEES cannot be paid for within seven years by the energy savings gained from the works.
2. Third- Party Consent
In some cases, certain energy efficiency improvements may require the consent of a third-party, such as a local authority or mortgagee, before they can be installed at the premises. Provided that the landlord has used reasonable efforts to obtain the necessary consent which has not been forthcoming, an exemption will apply.
3. Devaluation
If a report from a surveyor advises that the installation of energy saving measures would result in the devaluation of 5% or more an exemption will apply.
The exemptions apply for five years, after which the landlord must either try to improve the EPC rating of the premises in accordance with MEES or if compliance is still not possible, apply for a further five year exemption.
Exemptions are not transferable if the property is sold, instead a purchaser is given a six-month exemption in order to bring the property up to the requisite MEES standard or register an exemption.
Landlords who rent out non-compliant properties (without a valid exemption) face two penalties:
The financial penalties for renting out a non-compliant property can be substantial. For properties rented for less than three months, the fine can be up to 10% of the rateable value of the property, with a minimum fine of £5,000 and a maximum fine of £50,000. For properties rented for more than three months, the fine can be 20% of the rateable value, with a minimum fine of £10,000 and a maximum fine of £150,000.
In addition to financial penalties, landlords may find that the details of their breach of MEES are entered onto the publically accessible part of the Private Rented Sector (PRS) Exemptions Register. For some landlords, particularly those with large portfolios or higher-profile reputations, the risk of adverse publicity, which can affect the attractiveness of properties to tenants, buyers, or investors, is likely to be a greater deterrent than the financial penalty.
It is important for landlords to act in advance of the April 1st deadline in order to avoid a financial penalty or reputational damage.
An EPC Assessor will be able to assist you with ensuring your property is compliant and what improvements need to be made. If you require tailored advice as to whether you qualify for an exemption and for help with applying please get in touch with a member of our commercial property team.
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