How energy efficient are your buildings? Are you ready for the Minimum Energy Efficiency Regulations (MEES) to further bite on 1 April 2023?
What are MEES?
MEES were brought into force by The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 and seek to impose minimum energy efficiency standards for properties. This is done by reference to the Energy Performance Certificate (“EPC”) rating of the property.
When do MEES apply?
MEES apply to non-domestic leases granted for a term of more than 6 months but less than 99 years. Some leases of less than 6 months may also be caught where the tenant has previously been in occupation or has a right to renew or extend the term. Whilst many commercial leases will be caught, some will fall outside the scope of MEES because EPC certificates are not required for that type of property – for example, properties without heating, air conditioning or ventilation equipment and some listed buildings – or the EPC has expired during the term of a letting and has not been renewed.
MEES takes effect on commercial leases in two stages. The first stage has been in place since 1 April 2018; it provides that before a property can be lawfully let to a tenant, a landlord has to ensure the property has an EPC rating of E or above; or the landlord must have carried out appropriate improvements, and applied for an exemption.
The next stage – 1 April 2023
The second stage will come into effect on 1 April 2023. From this date where a lease is already in place, it will be unlawful for a landlord to continue to let that property if it has an EPC rating lower than an E, unless an exemption is in place. This means that a landlord will not legally be able to receive rent and could find it incredibly difficult to sell their property at market value.
If the property rating is below an E (i.e. F or G), and the EPC is not due to expire before 1 April 2023, the landlord will need to carry out improvement works and then obtain a new EPC with a higher rating or register an exemption.
Landlords who granted longer leases before the EPC legislation came into force on 1 April 2018 should check whether the property has an EPC and, if it does, whether the property is rated E or higher.
However, if a landlord has a lease where there is no EPC in place, because it was not required when the lease was granted or has expired since, then a landlord would be advised to think very carefully before obtaining a new EPC, as MEES currently only apply where an EPC is in place. In such cases a landlord may want to request a draft EPC to ascertain what rating would be obtained so that the landlord can decide whether to proceed, or whether improvement works must be carried out first in order to increase the rating before the EPC is obtained.
When deciding how to proceed, Landlords must not forget that unless prohibited from doing so by the terms of the lease, tenants may commission an EPC on a building. For this and other reasons many landlords choose to take a pro-active approach, and to audit their portfolios so they can plan when and how to obtain EPCs and, if necessary, undertake energy efficiency improvements having first considered the associated costs and timescale.
An eye to the future
Beyond the 1 April 2023 deadline, landlords should keep an eye on future proposals.
Various consultations have been underway on MEES and the Government has proposed that in order to meet climate change targets commercial properties will need to have a rating of C by 2028 and B by 2030.
The proposals for change are extensive. Many property owners will therefore be faced with carrying out energy efficiency improvements and/or registering an exemption when these changes are made so a prudent landlord would be wise to start looking at what these new proposals will mean for their property portfolios now – and to do so before any of their tenants do so, savvy to the changes ahead and with an eye on protecting the occupation of their premises.
For further information, see our article on the Government’s proposals here and Part two to this Energy Efficiency series here.