Since the Minimum Energy Efficiency Standards (MEES) rules for commercial properties were introduced in 2018, it has been unlawful for landlords to grant or renew a lease of commercial property where the Energy Performance Certificate (EPC) is below an E rating.
These rules are set to tighten from April 2023 when all rented properties will need to have an EPC rating of E or above. This means all privately rented property must reach the required standard, even if it is not at the start of the lease but in the middle of the lease term. Landlords therefore have just over 18 months to ensure that their portfolio of property reaches the necessary standard, or they will potentially be subject to substantial fines or other enforcement action.
The change of legislation in April 2023 is designed to improve the energy efficiency of buildings nationwide and to encourage owners to meet carbon dioxide reduction targets.
MEES apply to most, but not all, properties let on a tenancy. Landlords should first ascertain whether MEES apply to their properties – for instance, MEES do not apply to commercial tenancies for terms under six months or over 99 years. There are also exemptions for specific properties where an EPC is not required, such as some (but not all) properties that are listed or in a conservation area. According to the official guidance, an EPC is not required for a listed building if energy improvement requirements would ‘unacceptably alter’ the property’s character or appearance. In addition, some warehouses which don’t use much energy, temporary buildings, building due to be demolished, buildings under 50 square meters and places of worship are exempt. It will be the landlord’s responsibility to ascertain whether they have to comply with MEES.
The penalties for non-compliance for commercial properties are based on ratable value and can be up to £150,000. In addition, a landlord who fails to comply could lose income if a property cannot be let and suffer an adverse impact on both marketability and any rent review. So, while the cost of upgrading buildings may be high, owners of non-compliant commercial properties would be well advised to undertake works to improve energy efficiency in good time.
There are various exemptions which permit commercial landlords to continue to let non-compliant properties. These include where an independent assessor decides that, despite all relevant improvements having been made, the property remains below an E, where third-party consent is refused or where the conditions imposed are too onerous for the landlord to comply with. To register an exemption, landlords must enter the relevant exemption on the central government PRS Exemptions Register – notably, these exemptions will generally be time limited and personal to the landlord.
Landlords should act now in assessing whether MEES applies to their properties, what, if any, exemption applies, and what works is needed to comply with the new MEES standards. When considering what work is needed to ensure the property reaches an E rating, landlords should also note that the required minimum MEES rating is very likely to be increased over the next decade in line with the climate change and carbon reduction agenda. There are suggestions that the minimum rating will be increased to an EPC of C, or even a B, by 2030. It would therefore be advisable to consider incorporating future proofing in any work that is needed now.