Information and advice for Landlords to maximize the opportunity of improving the EPC rating of their property portfolios, ahead of MEES regulation changes and more stringent EPC rating requirements.
Background
Energy Performance Certificates have been a Statutory requirement for new Leases of commercial properties since 2008. The report assesses the energy efficiency of the building fabric and services installations of a building, and the building is given a rating on a scale from A-G with ‘A’ being the most energy efficient and G least energy efficient.
Under the Energy Act 2011, Minimum Energy Efficiency Standards (MEES) were introduced to provide a structure to the improvements that need to be made to commercial buildings, with a timeframe stipulating a gradual improvement in the minimum rating that must be achieved in order for new and existing tenancies to be compliant.
Summary of Key Dates
In relation to non-domestic properties in England and Wales implementation of the Regulations is to come into effect in the following stages:
MEES contains two separate short-term requirements:
- From April 2018, MEES triggered an enforcement mechanism whereby landlords will not be permitted to grant a lease of a commercial property with an EPC rating below E unless they have carried out all possible cost-effective energy efficiency improvement works, or an exemption applies.
- From 1 April 2023, landlords will not be permitted to continue to let a commercial property with an EPC rating below E on an existing lease unless they have carried out all possible cost-effective energy efficiency improvement works, or an exemption applies.
The Department for Business, Energy & Industrial Strategy has published a new Energy White Paper, which sets out a new mid-term target to uplift the existing MEES regulations
- By 2027 a minimum threshold rating of C must be achieved.
- By 2030 a minimum threshold rating of B must be achieved.
These dates are currently in a consultation period and if approved the updated MEES Regulations would come into force on 1st April 2025.
Exclusions and Exemptions
- The guidance set out in ‘The Non-Domestic Private Rented Property Minimum Standard’ document confirms that MEES will only apply to those properties which require an EPC by law.
- Identifying if a building or tenancy are affected by MEES is not straightforward, as there are various exclusions and exemptions Landlords can claim for depending on the circumstances surrounding the property.
- In all cases Landlords are advised to obtain their own independent advice in relation to possible exemptions and must ensure that all exemptions are registered via the central government PRS Exemptions Register.
Enforcement and Penalties for Non-Compliance
- Local Weights and Measures Authorities (LWMAs) will enforce the provisions set out in the MEES regulations as well as Trading Standards who will also undertake enforcement activity.
- The enforcement teams can impose hefty penalties for Landlords that do not improve their properties. These are broken down as follows:
– Breach for less than 3 months: 10% of the ratable value (min. £5000/max. £50,000)
– Breach for more than 3 months: 20% of the ratable value (£10,000/max.£150,000)
– Providing false or misleading exemption information: max. £5,000
– Failing to comply with a compliance notice: max £5,000
Dilapidations Matters
- The MEES regulations are set to impact existing leases from 1 April 2023. Landlords will have to undertake all reasonable efforts to implement improvements to their properties, excluding exempt properties to improve its EPC rating during the term of a lease.
- The Jervis v Harris clause which provides certain powers to the Landlords to enter their property to carry out repair works when tenants fail to do so, will not have the same enforcement under the new regulations. The new regulations place the obligations on the Landlord to carry out the works, therefore entry to a property, mid-term will unlikely be unlawful under the Leasehold Property (Repairs) Act 1938.
- ‘Green’ Lease provisions are seen to be the answer to facilitate access for MEES improvements, ensuring both the tenant and landlord share the benefits of any improvements made to meet the new standards. However, undertaking works with vacant possession will typically be contractually simpler and more economical.
- There is potential for strong supersession arguments at lease end, due to wholesale replacements of mechanical and electrical equipment, for example, being required due to poor energy ratings.
Protecting your Property Assets
- The second stage of MEES comes into force in April 2023, it is therefore the optimum time consider steps to achieve compliance, and budget for any necessary improvement works.
- The proposed implementations of the minimum EPC Band C by 2027 and EPC Band B by 2030 need careful consideration by Landlords in advance of the deadlines, to ensure your property or portfolio of properties meet the requirements.
- Where a property does not meet the necessary requirements on the PRS exemption registers Landlords should seek professional advice on how best to budget for improvement works and how such improvement will impact on any current tenancies.
- Landlords should consider lease events within their portfolios to maximize works on vacant properties prior to key rating threshold changes.
Bradle Mason LLP, we are well placed, along with our specialist partners, to provide expert advice, providing Energy Appraisals of each individual property, highlighting necessary works required to achieve compliance, and managing the implementation of these works, whether, for instance, that relates to installation of renewable energy sources or improvements to the building fabric, or services. Please contact one of our team to discuss how we an assist and the next steps.
DISCLAIMER: This article is for general information only and not intended as advice. Each project has its own set of unique circumstances, all potential issues should be investigated by a surveyor on a case by case basis before making any decision.