The Minimum Energy Efficiency Standards (MEES) support a government commitment to improve the energy efficiency of buildings. A minimum standard for commercial properties has been established and will be enforced from April 2018.
If this applies to you, then it’s time to prepare. Here’s our overview of MEES to help you make the first steps towards compliance.
What does it mean? It will soon be unlawful to let a ‘sub-standard’ commercial property, being a property with an Energy Performance Certificate (EPC) rating of F or G, subject to the exemptions detailed below.
When is it in force? The Minimum Energy Efficiency Standards (MEES) will apply to any new letting from 1 April 2018. However, from 1 April 2023 it will become unlawful to continue to let a sub-standard property, so if a landlord grants a 10 year lease of an F or G property now, in 2023 it will become unlawful for the landlord to continue to let that property unless the landlord upgrades the property to an E.
Are you likely to be affected? The Government estimates that up to 20% of commercial property is ‘sub-standard’ (i.e. rated F or G).
Are listed buildings included? They are only exempt from MEES if works to bring a ‘sub-standard’ property up to standard would ‘unacceptably alter’ the property’s character or appearance.
What are the exemptions? A landlord can still let or continue to let a ‘sub-standard’ property if one of the following applies:
- ‘Golden Rule’ – The landlord has made all possible ‘relevant energy efficiency improvements’ (those which would pay for themselves within 7 years), or none can be made, and the property remains sub-standard.
- Value – Works to meet the required rating would reduce the market value by more than 5%.
- Third party consents – The landlord has been unable to obtain consent for works from a third party, such as a superior landlord or local authority, despite making reasonable efforts.
What’s the penalty? 20% of the rateable value, with a minimum of £10k and maximum of £150k.
Will the tenant pay? – Unlikely. A standard lease clause will oblige a tenant to carry out all works required by law for the occupation and use of the property, but MEES is a requirement on the landlord not to let or continue to let a sub-standard property, so it’s not for the tenant to comply. In addition, with no breach by the tenant, it’s unlikely costs can be claimed for dilapidations.
How will this effect rent reviews? – It’s unclear. If the property is ‘sub-standard’ the tenant is likely to argue that it could not be lawfully let without improvement works, so the market rent should be discounted. In contrast, landlords might argue that an assumption the property may ‘lawfully be used’ means it should be assumed the ‘sub-standard’ property can lawfully be let.
Investors – be alert to EPCs when buying – If the EPC rating is F or G then a buyer needs to factor in that to re-let the property after 1 April 2018 or continue to let after 1 April 2023 the buyer might need to carry out works to improve the property.
What should you do? Plan ahead – review your properties, identify those likely to be ‘sub-standard’ and let after 1 April 2018 or still be let at 1 April 2023, then consider your options for improvements.
For advice on how to manage the impact of MEES, please contact Steven Haynes in the Commercial Property team at HRJ Foreman Laws Solicitors.