The Upcoming MEES Deadlines

Is your property ready for the next energy efficiency deadline?

The UK Government wants to reach net zero emissions by 2050 and, as part of that plan, is looking to reduce emissions on property. The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (SI 2015/962) Minimum Energy Efficiency Standards (MEES) legislation came into force in April 2018. It became unlawful to grant a new lease of a commercial or domestic property in England and Wales with an Energy Performance Certificate (“EPC”) rating of F or G, unless the property was registered on the PRS Exemptions Register.

On 1 April 2020, this was extended to existing privately rented residential properties.  It will apply to existing commercial lets on 1st April 2023, at which point it will be an offence to continue to let or rent out any property with an EPC rating below E.  Penalties range from £5,000 - £150,000 and are expected to rise in the future.

Whilst not currently legislated, the government currently has put forward proposals that commercial lettings should achieve an EPC ratings of C or higher by 1 April 2027 and B+ ratings by 1 April 2030.  Underlying measures currently used to assess energy efficiency ratings are also likely to change, such as re-weighting of the type of heating used in a property so a property using fossil fuels may find its current “acceptable” EPC rating going down and rendering the property sub-standard. 

What should Landlords and Agents do?

Firstly, if an existing commercial letting is known to have a rating of F or G, it is essential that landlords urgently carry out such works as are necessary to achieve an EPC rating of E or above or register the exemption, if applicable.  This must be completed before the deadline of 1 April 2023.

Some property types do not require an EPC, but these are fairly limited.  This means that most types of leases are covered by the rules.  Whether or not the MEES Regulations apply needs to be checked on a property-by-property basis.

Please see below for further detail on:

• Properties where it has not been legally necessary to obtain an EPC previously.
• Anticipated changes for commercial property in two year “compliance windows”.
• The exemption rules.
• Commercial leases.
• New MEES documents for managing commercial lets.

Properties where it has not been legally necessary to obtain an EPC previously. 

For properties where it has not been legally necessary to obtain an EPC previously, e.g. where there has not been the grant of a new lease or lease renewal, there is currently no obligation to obtain or update an EPC.  This is expected to change.  The government proposes that all let properties, even if listed or in a conservation area, must have a valid EPC.   Whether works can be done will depend on the planning regime and if planning consent is needed but not possible, then an exemption would be available.   The anticipated changes for commercial property are proposed in two year “compliance windows” as follows:

Non-Domestic EPC Rating C – First Compliance Window

1 April 2025 – Landlords must register a valid EPC of E+ for commercial tenanted properties in scope of MEES (NB: This includes obtaining a new one where an EPC has expired). 

1 April 2027 – All tenanted properties must have achieved EPC rating of C+ (or register a valid exemption).

Non-Domestic EPC Rating B – Second Compliance Window

1 April 2028 – Landlords must register a valid EPC C+ – meaning if an EPC has expired a new one must be obtained, and any upgrading works carried out.

1 April 2030 – All tenanted properties must have achieved EPC rating of B+ (or register a valid exemption).

Consequently, it is sensible for landlords to start future-proofing both their commercial properties sooner rather than later, with the next anticipated MEES key date being 1 April 2025.   Letting agents and property managers should consider updating their lease renewal processes to include reminders to landlords of the need to assess the EPC risk of a property, if not already doing so. 

Steps should be taken to review EPC ratings to identify potential risk properties.  Click here for a checklist to help get you started.  However, advice from an appropriately qualified professional should be taken, especially in relation to the exemption rules which are complicated.  Exemptions include:

New Landlord – Recent acquisition of a sub-standard property which is already let.  Six months “grace” period to carry out upgrades and, if still sub-standard once all relevant improvements are carried out, register another valid exemption.

Consent Denied – Where third party consent to the works is required but cannot be obtained, e.g. tenant will not allow access, unable to get listed building consent from local authority, lender will not approve works.  This cannot be relied upon if the lease provides for access to carry out energy efficiency works.

Devaluation – Where an independent surveyor provides a report confirming the improvements would result in a reduction of more than 5% of the market value of the property.

All relevant energy efficiency improvements have been made or no energy improvements can be made, and the property remains substandard.

Wall Insulation not suitable – Where an architect or chartered engineer provides advice that installation could impact negatively on the fabric or structure of the building.

7 Year Payback (Commercial only) – Savings won’t be paid back via energy bill savings in the 7 years after the works have been carried out.

High Cost Exemption (Residential only)– Evidence that the cheapest of three quotations from different installers exceeds £3500 (inc VAT) and no energy improvements can be made at a cost below this amount.  It is expected that the cap will rise to £10,000 (inc VAT) from April 2025.

Full details of exemptions and evidence required can be found here:  Guidance on PRS exemptions and Exemptions Register evidence requirements - GOV.UK (www.gov.uk).

Commercial Leases.

The commercial template leases already include provisions for the landlord to enter the premises to carry out energy efficiency works, for the tenant to pay the costs of the work and a prohibition on alterations which would adversely affect the energy efficiency of a property.

New documents for managing energy efficiency works.

New content is now available in relation to MEES for commercial lets, including a checklist and letters to assist with the management of energy efficiency assessments and upgrading works, as well as incorporating energy efficiency requirements in template business lease heads of terms to include provisions for access for inspections and upgrading works and recovery of costs from tenants.

Whilst not yet legally required to make improvements above an E rating, it is anticipated the plans will be legislated shortly.  The new content can be used where landlords wish to start future proofing their properties in advance of the anticipated changes. 

More Information.

Further information on domestic and non-domestic MEES, including guidance notes, details of exemptions and how to register an exemption, is available on the www.gov.uk website. 

The contents of this Newsletter are for reference purposes only and do not constitute legal advice. Independent legal advice should be sought in relation to any specific legal matter.