The Government has recently published its long awaited guidance (“the Guidance”) on how the Minimum Energy Efficiency Standards Regulations (“the Regulations”) are expected to operate for non-domestic private rental properties when they come into force in 2018.
For the background and scope of the Regulations please see our MEES Information Sheet. To access the Guidance published by the Government on 23 February 2017 please click here: Government guidance on MEES Regulations.
The Guidance is intended for landlords, enforcement authorities, letting agents and property management agencies. The Guidance sets out when the Regulations apply, how to identify what improvement works can be carried out to a sub-standard property, the exemptions a landlord can rely on for non-compliance and the penalties that may be imposed.
In some respects the Guidance provides helpful clarification on how the Regulations will apply to commercial properties. However, there are still some outstanding questions the Guidance fails to address which leaves landlords in a somewhat uncertain position.
EPC voluntarily obtained
The Guidance suggests that where a building owner voluntarily obtains an Energy Performance Certificate (“EPC”) in relation to a building which is not legally required to have an EPC (e.g. properties without heating, air conditioning and ventilation equipment, certain listed buildings (see below), temporary buildings, places of worship etc), the obtaining of an EPC should not trigger compliance.
The Guidance makes it clear that listed buildings are not necessarily exempt from the requirement to obtain an EPC. It states that there is a common misunderstanding that a listed building does not require an EPC. This stems from the exception in EPC regulations that they do not apply to “buildings officially protected as part of a designated environment or because of their special architectural or historical merit.” However, the EPC regulations also state that this exception only applies “in so far as compliance with certain minimum energy performance requirements would unacceptably alter their character or appearance.” Hence, not all listed buildings are excluded from the requirement for an EPC and those that are required to have an EPC will fall within the regime.
It remains to be seen whether this approach will be challenged but until then, you should consider assessing listed buildings on a case by case basis, seeking advice from a surveyor on whether improving the energy efficiency of the building to comply with the Regulations would alter the character or appearance of the building. If not, the granting of a lease of the building will trigger a need for an EPC, which will bring the property within the scope of the Regulations.
The restrictions on letting in the Regulations apply to the extension or renewal of an existing tenancy, as well as to the grant of a new tenancy. The Guidance reminds landlords that renewal leases will be caught by the Regulations whether the tenant is entitled to a renewal lease under the Landlord and Tenant Act 1954 (the “1954 Act”) or otherwise. A landlord may therefore be in breach of the Regulations by granting a renewal lease of a sub-standard property and cannot avoid liability by virtue of the lease being required to be granted under the 1954 Act.
Licences, agreements for lease, tenancies at will & periodic tenancies
The Guidance suggests that permitting a third party to occupy a sub-standard property under a licence (as opposed to a lease), or under an agreement for lease, is not likely to trigger a requirement to comply with the Regulations. However, permitting occupation under tenancies at will and periodic tenancies does appear to be caught.
Exemption: 7 year payback test
In respect of the “no relevant improvements” exemption detailed in our information sheet (a link to which is above), the Guidance has clarified that a landlord is expected to do energy improvement works that would pay for themselves over 7 years or less through savings on energy bills, even if the landlord has no available monies to do the works and no ability to borrow sufficient funds to pay for them at the relevant time.
The Guidance also provides information on the application of the 7 year payback test and clarifies that, when considering the test, a landlord can measure improvement measures individually as opposed to in packages. Therefore, a landlord is exempt from installing a particular improvement (A) if, assessed alone, it fails the 7 year payback test. If carrying out improvement (A) in conjunction with another improvement (B) would mean the combined improvements (A and B) would satisfy the test, this does not matter and the exemption would still apply for improvement (A). The Government would prefer landlords to assess improvements on a package basis but they do not have to and landlords will only have to implement as many improvements as individually satisfy the test.
Exemption: third party consent
Landlords should note that where they wish to register an exemption for lack of third party consent, the Guidance states that a copy of any correspondence and/or relevant documentation demonstrating that consent was required, sought, refused, or granted subject to a condition that the landlord was not reasonably able to comply with, should be lodged on the exemption register.
Exemptions are generally valid for 5 years but the Guidance makes it clear that, where the unobtained consent was that of the tenant, the exemption only applies for as long as that party remains the tenant. If the Guidance is correct on this point, after 2023 Landlords will need to take note of assignments of the lease and apply for consent from the assignee and re-register the lack of third party exemption, if still applicable.
The Exemptions Register
The exemptions register is open from 1 April 2017 and the Guidance sets out the information that needs to be included in the register if landlords wish to register an exemption. The Guidance makes it clear that exemptions are personal and do not pass to a successor in title on the sale of a commercial property. The buyer will therefore need to register its own exemption following the purchase of the property. If the buyer wishes to rely on a lack of third party consent exemption, it seems that it will need to apply for the consent itself once it becomes the owner of the property, even if the third party had previously been approached for consent by the previous owner and refused to grant it.
In the event that you have any queries on the Guidance, or regulations in general, please contact Sophie Ogilvie on 01322 42254 or at email@example.com.