The Minimum Energy Efficiency Standards (MEES), first implemented in April 2018, currently require that landlords granting a new lease of commercial premises must hold an energy performance certificate (EPC) with a rating of E or above unless they have registered a valid exemption.
From 1 April this year, the regulations are tightening and it will become unlawful for a landlord to continue to let a sub-standard property unless they have made all possible cost-effective energy efficiency improvements prescribed by MEES, or one of the exemptions applies.
The UK government views the improvement of EPC ratings as playing an important role in achieving its goal of net zero by 2050. The intention is that all rented non-domestic buildings achieve an EPC of C by 2027 before attaining B by 2030. Currently, only 12% of all registered commercial properties are thought to meet these criteria.
The MEES regulations apply to all non-domestic properties that are let pursuant to either an assured tenancy or a regulated tenancy (or a domestic agricultural tenancy) and are legally required to have an EPC. However, the MEES regulations do not apply to tenancies of over 99 years or less than six months (with no option for renewal).
If an EPC is not already in place, the requirement to get one is triggered when certain alterations are undertaken, on the construction of new properties and where a property is sold, assigned or rented. The EPC certificate is issued by an assessor and is valid for 10 years from registration on the EPC Register.
Premises that are not required to have an EPC include certain listed buildings, holiday accommodations that are rented out for less than four months a year or let under a licence to occupy, and industrial sites and workshops that do not use a lot of energy.
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Why Does Compliance Matter?
The financial penalties that can be imposed are for letting a non-compliant property for a period of fewer than three months – a fine of 10% of the rateable value with a minimum fine of £5,000 and a maximum of £50,000. For letting a non-compliant property for a period of more than three months, a fine can be imposed of 20% of the rateable value with a minimum fine of £10,000 to a maximum of £150,000.
If an exemption applies, a landlord can enter details of commercial premises to the PRS Exemptions Register and continue to let a sub-standard property without any enforcement action being taken. Examples of exemptions include:
The Seven-Year Payback Test – This applies if the improvement works necessitated by MEES are not paid for within seven years by the energy savings from the works.
Third-Party Consent – Depending on the circumstances, certain energy efficiency improvements may legally require the consent of a third party before they can be installed on the premises. For example, the improvements could include external wall insulation or solar panels, which require local authority planning consent or, perhaps, the consent of a mortgagee of the premises. Where the landlord has used reasonable efforts but has been unable to obtain the required consent, this exemption applies.
Devaluation – This applies when the landlord has obtained a report from a surveyor that advises that the installation of energy-efficiency measures would result in reducing the market value of the premises (or the building that the premises form part of) by 5%.
Temporary Exemption Due To Recently Becoming A Landlord – New landlords can register a six-month exemption in order to give them time to bring the premises up to the required energy efficiency standard.
The exemptions generally last for five years, after which the landlord must try again to improve the EPC of the premises in accordance with MEES. If this is still not possible, then a further exemption may be registered. The exemption must be registered in advance for a landlord to be able to rely on it without the risk of attracting penalties.
Exemptions are not transferable to a buyer if the property is sold.
To book an EPC / find out how, our friendly team here can assist you on the next best steps as a commercial landlord. You can get in touch by ringing 0151 200 2102 or email firstname.lastname@example.org