The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015, came into effect on 1 April 2018 and are still taking some of commercial landlord clients by surprise. They introduce Minimum Energy Efficiency Standards (“MEES”), which are important to get to grips with now, as these apply to all leases now being granted.
Whilst the Regulations affect domestic and non-domestic properties, this article concentrates on what they mean for commercial landlords, and what needs to be done now and into the future to ensure full compliance.
If you are a commercial landlord, and have a lease of commercial property of more than 6 months and under 99 years term, you must:
- Review your property portfolio and identify those properties that have an EPC rating of F or G (as a minimum rating of E is currently required);
- Consider whether any of the available exemptions (set out below) apply to the property;
– If no exemptions apply, you will need to consider what energy efficiency improvements are needed to bring the EPC rating up to minimum level E or higher.
– You should consider the Recommendation Report with the EPC, as this will suggest what improvements could be made and the expected efficiency return;
- Review (or ask us to review) the lease terms, so that you know that any works you have in mind are permitted and how the costs of those works will be dealt with;
- Consider that for any future leases, including renewals, that the lease terms should be brought up to date so as to be certain that any improvements are permitted and that the lease sets out who is to be responsible for the costs.
The MEES standards now apply to the grant of a new tenancy to a new tenant, as well as to renewal of existing tenancies. Furthermore, from 1 April 2023, MEES will apply to all tenancies, including existing tenancies – so leases now in place and which will not be changed, but will still be running in 2023 could benefit from being reviewed with this in mind.
There are exemptions and MEES will not apply in the following situations:
- The lease term is very long or very short (as above)
- The property doesn’t require an EPC;
- Lack of third-party consent to undertake the required works (although this needs to be requested in good faith);
- In the previous five years:
- the landlord has tried to carry out works to bring the property up to level E standard but the tenant has refused to consent for these works;
- the landlord has obtained an independent report from a surveyor stating that making the improvements to the energy rating would result in a reduction of more than 5% in the market value of the property.
The above list is not exhaustive and that there are a number of temporary exemptions. Landlords will need to check the full extent of exemptions available at the time.
Any exemption must be registered with Trading Standards so they can be lodged on a central, public register and these are not automatically transferred on sale, so any purchaser will need to investigate these exemptions to ensure that they would remain applicable and then register them following completion.
Why do anything?
You need to consider:
- the fact that any property with an EPC result of F or G will be considered to be sub-standard, bringing commercial risks of reduction in capital value, rental value, and empty properties,
- the enforcement of the regulations carry substantial penalties. Enforcement will be carried out by Trading Standards who can issue an enforcement notice. They can decide whether to issue a financial penalty, a publication penalty or both.
- In addition, lenders are currently reviewing their lending criteria. If a property is not compliant, it may not be considered good security.
Financial penalties will depend upon the length of the breach and the rateable value of the property. The maximum individual penalty of £5,000 is per property and per breach, with a potential maximum of £150,000.
A publication penalty could be just as damaging as it involves publication of the landlord’s name and address on a public register for up to 12 months.
If you still need to take action, now is the time to do so. If you require any guidance on these aspects, please contact Anthony Fripp on 01392 260123 or firstname.lastname@example.org. WBW Solicitors has offices in Newton Abbot, Torquay, Paignton, Bovey Tracey, Exeter, Launceston, Honiton Exmouth and Sidmouth.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.
The full (72 page) Government guidance is here: