What are the minimum energy efficiency standard (MEES)?
The MEES were introduced by the Energy Efficiency (Private Rented Property) (England & Wales) Regulations 2015, which originated from the Energy Act 2011 and are part of the Government’s plans to combat climate change and reduce greenhouse gas emissions by requiring the least energy efficiency properties to be brought up to a minimum acceptable standard.
The existing rules applied to certain domestic properties only but as from 1 April 2018, it became unlawful for a commercial landlord to grant a new lease or renew an existing lease of non domestic property where the EPC rating is less than E. From 1 April 2023, the rules will be extended to include all existing commercial leases.
What does MEES mean to Landlords and Tenants?
Landlords and tenants of commercial properties must be aware of what the MEES mean to them. Whilst any new lease entered into from 1 April 2018 (including renewals of leases which existed prior to that date) will still be valid as between the landlord and the tenant, the landlord will be in breach of the MEES if the EPC rating is less than E. The obligation to comply with the MEES, however, may be passed down to the tenant by virtue of the terms of the lease. Commercial landlords should therefore act now to carry out a review of their properties to ascertain what remediation works may be required to bring them up to the required standard and to understand whether or not the liability to comply with these Regulations falls on them, the tenant or is excluded under the Regulations.
A tenant considering entering into a new commercial lease of commercial premises after 1 April 2018 should ensure that they are given an up to date EPC confirming the energy efficiency rating for the premises. Where it is below “E” the parties will need to decide who is to bear the financial cost of bringing the property up to the required minimum standard. Even if the tenant is able to exclude its liability for compliance with the Regulations and pass this on to the landlord at the landlord’s cost, this may still have an impact on the timing for completion of the lease or the operation of the tenant’s business if compliance works are to be carried out during the Term.
A landlord will need to consider not only the costs to upgrade the property but the cost if the property cannot be let.
Who is responsible for bringing the property up to the minimum standard, Landlord or Tenant?
Where a lease of commercial premises was entered into before 1 April 2018 but will continue beyond 1 April 2023, the parties will need to consider who will be responsible for bringing the property up to the minimum standard and how this can be done. Most commercial leases contain provisions obliging the tenant to comply with all statutory and legislative obligations in respect of the property and its use and the landlord may seek to rely upon this to impose the obligation on the tenant to bring the property up to the required minimum standard. Alternatively, the landlord may be prepared to carry out the works itself, but may be entitled to rely upon the service charge provisions within the lease to pass the cost of this on to the tenant.
What are the Penalties for non-compliance?
The penalties for non compliance are a fine equal to 10% of the rateable value of the property (subject to a minimum of £5,000.00 and a maximum of £50,000.00). Failure to comply with a penalty notice within three months will result in an increased fine of up to 20% of the rateable value (subject to a minimum/maximum of £10,000.00 – £150,000.00).
Which buildings and tenancies do the MEES apply to?
It is worth noting that the MEES do not apply to certain commercial premises, including buildings which do not need an EPC (industrial buildings, some listed buildings, non residential agricultural buildings, holiday lets and temporary lets); tenancies of less than six months (not being renewal tenancies) and long leases (99 years plus).
What are the exemptions?
There are also some exceptions which would take a commercial property out of the MEES. If the required works to bring the property up to the minimum energy efficiency standard would reduce the marketable value of the property by more than 5% or would damage the property, then the works do not need to be carried out. In addition, if the cost of the works cannot be offset against seven years’ energy savings, or the landlord is unable to obtain any consent required in order to carry out the works (i.e. from the tenant or the Local Planning Authority), then the works do not need to be carried out.
How can Moorcrofts help?
The Regulations may appear onerous but in the long term they offer an opportunity to improve the quality of property available for tenants whilst at the same time protecting the planet. The key is for all parties to act now to consider what works may be necessary to comply with the MEES and to agree how the costs of these should be borne.
For commercial property advice in respect of MEES, please contact Julia Ferguson on t: 01628 470 009 or e: firstname.lastname@example.org.