Minimum Energy Efficiency Standards Set to impact on UK Real Estate

The implementation of the Minimum Energy Efficiency Standards Regulations (MEES) is coming around quickly and is set to potentially impact on value and liquidity in the UK real estate market.  The regulations, which were published in 2015, prohibit landlords from leasing commercial or residential property with an energy performance certificate (EPC) below an E rating.

The key dates for implementation of MEES are: 

• 1st April 2018 – The prohibition on leasing commercial or residential property with an EPC rating below an E rating will apply to new leases or the renewal of leases.
• April 2020 – Existing residential leases will be caught by the prohibition, so all residential property which is let out will need to be an EPC rating of E or above.
• April 2023 – The regulations will then apply to existing commercial leases.

The regulations will not apply to properties which do not legally require a rating, so may be exempt if you an EPC has been voluntarily obtained.  Leases of less than 6 months or more than 99 years will also be exempt and there will be a number of other exemptions potentially available for landlords to take advantage of.

Notwithstanding this some commentators are suggesting that up to a fifth of the UK commercial property stock could be impacted.  Whilst at present financial penalties for non-compliance are relatively modest, the potential impact on value and liquidity in the UK real estate market as transactions start to feel the impact of the MEES regulations will be of concern to lenders heavily exposed to UK real estate.

The MEES regulations were originally brought in as a response by the UK government to obligations imposed on EU members to improve energy efficiency of buildings.  Some have speculated that with the UK now set to exit the EU the regulations could be scrapped.  However, with guidance on MEES recently published by the government and implementation set to start before the UK formally leaves the EU it is probably unlikely that there will be any such change in direction.  Anyone exposed to the UK real estate market, including lenders, should therefore start to plan on the basis that MEES will come into force on the timetable currently set out.