Commercial property landlords need to have the MEES Regulations (Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (SI 2015/962) on their radar.
The regulations prohibit the granting of new or renewal leases from 1 April 2018 where the property has an EPC rating of ‘F’ or ‘G’.
The MEES Regulations will also apply to all existing tenancies from 1 April 2023. It should be noted that this is likely to include higher ratings in the future.
For the MEES Regulations to apply, the property should be situated in England or Wales, let under a qualified tenancy, not be a dwelling and be required to have an EPC.
Where the property has an EPC rating of less than ‘E’, then it is considered sub-standard, and the landlord is required to carry out energy efficiency improvement works to comply with the MEES Regulations, unless:
- The improvement works have been carried out, but the property remains sub-standard;
- There are no improvement works that can be made to the property; or
- An exemption applies.
The landlord must register prescribed information on the PRS Exemptions Register if any of these circumstances apply. The exemptions are time-limited and generally last no more than 5 years.
There are several exemptions that may permit the granting of new leases or renewal leases of sub-standard property as follows:
- Where the landlord requires consent from the tenant or a third party to carry out the improvement works and this consent is refused.
- Where the landlord obtains a report from an independent surveyor stating that the improvement works would decrease the property’s value by more than 5%.
- A temporary exemption applies where the landlord purchases a property that is subject to an existing tenancy and the MEES Regulations are postponed for 6 months from the date of purchase to allow the landlord time to complete the improvement works or apply for another exemption.
Seven-year payback test
The landlord will only be required to carry out improvement works where the expected value of savings on energy bills that the works are expected to achieve over 7 years is the same as or higher than the cost of the works. If this test is not satisfied, then the landlord has a legitimate reason not to carry out the works and must register this on the PRS Exemptions Register and supply three quotes to evidence this.
Failure to comply
If a landlord lets a sub-standard property, then enforcement action in the form of fines and public exposure may be taken. A compliance notice may be issued which will specify certain conditions to be complied with by a given date. If these are not satisfied, then a prohibition notice will be issued, and this may contain a fine. Fines will depend on the length of the breach and type of property and are capped at £150,000.
There may also be a decrease in the value of the property as potential purchasers will anticipate the cost of improvement works and tenants may pay a lower rent than for similar properties.
If you are considering renting your property or renewing an existing lease and are concerned by the implications the regulations may have on you, please do get in touch with one of our specialists.