Why commercial landlords need to prepare for the minimum energy efficiency standards
From April 2018, Minimum Energy Efficiency Standards (MEES) will make it unlawful for commercial landlords to grant a new lease or lease renewal for a building which fails to meet the minimum energy ratings set.
Who will be affected by the Minimum Energy Efficiency Standards (MEES)?
The new legal standard comes into effect from April 1, 2018 for commercial properties in England and Wales which do not achieve a minimum Energy Performance Certificate (EPC) of ‘E’. While from 2018 it will apply only to new leases and lease renewals, from April 2023, MEES will broaden to make all leases on property with sub-standard energy efficiency ratings illegal.
With an estimated 18,000 commercial buildings in London alone only qualifying for an EPC rating of F or G, it’s clear that plenty of landlords need to act now to ensure their property isn’t left vacant and unlettable when the new regulations come into force. If you’re not sure what your EPC rating is, you can check it at ndepcregister.com/?.
There are exemptions to the new standards across the building itself and the tenancy agreement so it’s worth familiarising yourself with the legislation ahead of time so you know where you stand:
Building exemptions
- Certain buildings simply aren’t required to have an EPC. These include industrial sites, workshops, some listed buildings, as well as holiday lets.
- Buildings where the EPC is over 10 years old.
- Where an independent surveyor determines that carrying out the energy efficiency improvements would devalue the property by more than 5%.
- Where the energy efficiency improvements are deemed to be not cost-effective by an independent assessor; they would not pay for themselves through energy savings within seven years.
Tenancy exemptions
- Tenancies of over 99 years or less than six months, where there is no right of renewal.
- Where consent has been refused from a third party, such as the tenant or planning authorities.
Landlords must register their exemption on the government PRS Exemptions Register. It’s worth noting that exemptions are valid for five years only.
How much could it cost me if I don’t comply?
The financial penalty for letting an F or G rated property after April 2018 starts at a minimum of £5,000 for those in breach of MEES regulations for less than three months. After this timeframe, the penalty increases to 20% of the rateable value, with a minimum penalty of £10,000 and a maximum of £150,000.
This, of course, is alongside the loss of income from your vacant property while it holds an EPC of F or G. You’ll also have to factor in the cost of conducting the required works to meet the energy efficiency standards set.
Financial costs aside, your reputation will also pay the price if you fail to comply, as all infringements of the regulations will be made public.
It could provide opportunities for landlords too
Making energy efficiency improvements to meet MEES could help to increase the rental and asset value of the property, especially when combined with other renovations.
There’s also the option of entering into a green lease, where an agreement with the tenant is formed as to how the building is occupied, operated and managed in a sustainable way. This could include the cost of energy efficiency improvements being shared for the benefit of both parties.
Once these energy efficiency improvements have been carried out, landlords will be exempt from meeting the minimum ‘E’ ratings for five years.
What should I do next?
There’s plenty to consider and it is worth acting sooner rather than later. Landlords can prepare for the change in legislation by understanding whether it applies to their properties, checking their current EPC ratings and reviewing their lease agreements.
To discuss the new legislation and reach the right decision for your property portfolio contact Mitchell Brooks, head of agency, or Peter Ciesielski, head of contract administration and dilapidations, at Kempton Carr Croft. The firm acts and advises on all areas of commercial property.
Its experienced agency team works with landlords and property managers to sell, lease and acquire commercial buildings, sites and investments across the Thames Valley. Its building surveying department can provide a schedule of works required to ensure buildings rated F and G are upgraded to meet the MEES then manage any resulting building works on your behalf.
