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Minimum energy efficiency standards: a reminder

The Minimum Energy Efficiency Standard (“MEES”) is due to begin to take effect in less than three years for both commercial and residential property.  The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (“the Regulations”) will bring the MEES into force stage by stage on and from 1 April 2016, when residential tenants will be able to request landlord consent - not to be unreasonably withheld - to prescribed energy efficiency improvements (unless exemptions apply or the landlord proposes alternative energy efficient measures).  Then, on and from 1 April 2018, it will not be lawful to grant a new or extend or renew an existing commercial or residential lease where the property has a sub-standard EPC rating (i.e. one of less than “E”).  This will be further extended by it becoming unlawful to continue to let an EPC sub-standard residential property on and from 1 April 2020 and commercial one on and from 1 April 2023.

Landlords with properties with an EPC rating of less than “E” will have to carry out works to improve energy performance to “E” or above.  Failure to do so will result in civil penalties.

Do the Regulations apply?

The MEES will apply to all properties needing an EPC and will therefore not apply to the following (non-exhaustive list of) excluded properties:

For commercial property, the MEES will apply to all leases (including extensions) granted for more than six months but less than 99 years.

For residential property, the MEES will apply to assured tenancies, assured shorthold tenancies, Rent Act tenancies and any other tenancy specified by an order of the Secretary of State from time to time.

What are the exemptions?

There are three exemptions allowing landlords to let or (later) continue to let EPC sub-standard properties:

  1. Cost effectiveness - Where it has been assessed that the recommended improvements would not pay for themselves over a period of seven years based on energy bill savings.
  2. Third party consent - If a third party such as a lender, freeholder or tenant has the right to prevent works from being carried out without their consent which it refuses or would grant only unreasonably conditionally.
  3. Devaluation of the property - Where the energy efficiency improvements will decrease the market value of the property by more than 5%.  This will need to be confirmed by a report from an independent surveyor.

All of the exemptions above will last for up to five years and will need to be pre-registered on the Private Rented Sector (PRS) Exemptions Register in order to be valid.  The exemptions cannot be transferred to a new owner.

Implication for landlords

Enforcement of the MEES will be carried out by local authorities through Trading Standards Officers.  Landlords may be served with a compliance notice requesting information relating to the EPC rating of the property.  If the information is not provided or does not comply with the MEES a penalty notice will be issued.  The financial penalties for renting non-compliant commercial property can be significant and the breach will also be published in the PRS Exemptions Register.

Landlords should begin (if they have not done so already) carrying out assessments of their properties in order to determine which properties are likely to fall below the minimum “E” rating and investigate what improvements are available to raise the energy efficiency rating.  Landlords should also give thought as to whether any of the exemptions will apply.

Whilst the minimum EPC rating from 1 April 2018 will be “E”, careful consideration should be given by landlords as to whether property should be improved to a higher (e.g. “D” or “C”) rating in case higher rating standards are introduced in the future.  The Secretary of State is due to review the position every five years.

Landlords should consider, in the event that improvement works are required, whether the current lease terms allow for the landlord to enter the property to carry out the works.  Tenants may seek to prevent access if the works would cause substantial disruption and an exemption will need to be registered.  New leases should be drafted to allow for rights of entry to enable the landlord to carry out the works and allow for the costs of the works to be passed on to tenants through service charges.

Prettys can advise landlords and tenants when committing to leases on the commercial and legal impact of the MEES.

For more information, please contact Craig Marshall, Trainee Solicitor - Commercial property law. cmarshall@prettys.co.uk

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