The Minimum Energy Efficiency Standard (“MEES”) takes effect in less than three years. The rules, detailed in the Energy Efficiency (Private Rented Property) England and Wales Regulations 2015, provide that from 1 April 2018 it will not be lawful to grant or renew existing commercial or residential leases of substandard buildings. A substandard building has an EPC rating of F or G.
Some buildings will be excluded from MEES including:
- those that do not need an EPC (for example, listed buildings);
- commercial lettings for more than 99 years or for less than six months; and
- domestic lettings that are not assured or regulated, or low cost rental accommodation let by a registered provider.
Works to bring the building up to scratch do not have to be carried out if they are not cost-effective, the test being if the cost of the improvement is less than the predicted energy cost saving over seven years. So, if despite all cost effective works having been completed, E rating is still not achieved, the building may be let. The type of work that is required by MEES includes:
- measures specified in the EPC recommendation report;
- installation of energy metering; and
- improved insulation.
There are a number of exemptions from MEES. These include where:
- all cost-effective works have been completed but an E rating has not been achieved;
- necessary consents for the works cannot be obtained (e.g. consents from tenants, lenders, and superior landlords); or
- the work required would result in more than a 5% reduction in the value of the building.
All exemptions have to be recorded on the PRS Exemptions Register to be valid. Exemptions are only valid for five years and cannot be transferred to a new owner.
Landlords will need to assess whether improvements pass the seven year pay back test and when best to carry out the works. Some work may be cheaper to carry out whilst the building is vacant. However, with a tenant in situ it may be possible to pass on some cost to the tenant.
From April 2023 stricter rules will prevent landlords from continuing to let a property with an EPC rating below E unless energy efficiency measures have been completed or an exemption applies. For domestic properties this date is April 2020.
Enforcement of MEES will be undertaken by local authorities through Trading Standards Officers. A compliance notice would be served requesting information. If information is not forthcoming or does not prove compliance a penalty notice would follow. Financial penalties for renting a non-compliant commercial property are significant and in addition the breach will be published in the PRS Exemptions Register.
On a renewal, Section 35 of the Landlord and Tenant Act 1954 requires the court to have regard to the terms of the current tenancy and circumstances in deciding the terms for the new tenancy. Will a landlord be able to renew a protected lease but also have regard to MEES, so that it can include provisions enabling it to carry out works and to recharge the cost to the tenant? Whether this is possible on renewal will be a matter for negotiation and the courts. The alternative will be for a landlord to claim and register an exemption in the PRS Exemptions Register on the basis that the tenant withholds consent to the works.
Landlords should be considering now whether or not:
- to improve the property’s EPC rating in anticipation of 2018;
- on the grant of a new lease to include rights of entry to enable it carry out the work;
- to make provision in a new lease for allocation of cost etc.