Landlords and Tenants take note: the Minimum Energy Efficiency Standards Regulations affect all commercial and residential lettings from 1 April 2018
The Minimum Energy Efficiency Standards (MEES) were introduced by the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (the “Regulations”) and will apply to private rented commercial and residential premises from 1 April 2018.
What are they?
The Regulations make it unlawful from 1 April 2018 to let buildings (both commercial and residential) in England and Wales which do not achieve a minimum Energy Performance Certificate (EPC) rating of ‘E’.
The Regulations also provide:
> From 1 April 2020, landlords must not continue letting a residential property which is already let if that property has an EPC rating of band F or G.
> From 1 April 2023, landlords must not continue letting a commercial property which is already let if that property has an EPC rating of band F or G.
Why are the Regulations needed?
The UK Government is concerned because properties with an energy rating of F or G waste energy which not only contributes to the country’s greenhouse gas emissions but also adds an unnecessary cost on business and the wider economy.
How are the Regulations enforced?
The Local Weights and Measures Authorities (“LWMA”) will enforce the Regulations. The LWMA can check whether a property meets the minimum level of energy efficiency and, where it doesn’t, may issue a compliance notice requesting information where it appears to them that a property has been let in breach. How the LWMA will monitor and check this is unclear, but where an enforcement authority is satisfied that a property has been let in breach of the Regulations it may serve a penalty notice on the landlord imposing financial penalties. The LWMA has the power to issue financial penalties (up to £150,000 for commercial properties) and the landlord’s details can be put on a ‘name and shame’ register.
Are there any exemptions?
Yes, in certain limited circumstances, landlords may be able to claim an exemption from the Regulations.
By way of brief summary, this includes the following exemptions for commercial premises:
(a) Third Party Consent exemption: The Regulations acknowledge that certain energy efficiency improvements may legally require third party consents (e.g. planning permission or from landlords’ mortgagees’) before they can be installed in a property. Where third party consent is required for works the landlord must identify this requirement and make ”reasonable efforts” to seek consent.
(b) Property devaluation exemption: A temporary exemption of five years from meeting the minimum standards will apply where the landlord has obtained a report from an independent surveyor (who is on the RICS) register of valuers advising that the installation of specific energy efficiency measures would reduce the market value of the property, or the building it forms part of, by more than five per cent.
(c) Exemption due to recently becoming a landlord: The Regulations acknowledge that there are some circumstances where a person may have become a landlord suddenly and, as such, it would be unreasonable for them to be required to comply with the Regulations immediately.
The following exemptions apply to residential premises:
(a) Where all the ‘relevant energy efficiency improvements’ for the property have been made (or there are none that can be made) and the property still has an EPC rating of F or G:This exemption is self-explanatory. This is a temporary exemption for five years; after this time it will expire and the landlord must try again to improve the property’s EPC rating to meet the minimum level of energy efficiency.
(b) Where a recommended measure is not a “relevant energy efficiency improvement” because the cost of purchasing and installing it cannot be wholly financed at no cost to the landlord: This exemption is the subject of an ongoing consultation. At the time of writing, the UK Government was intending to introduce a limit on the amount any landlord would need to invest in an individual property rather than adopt the “no cost” principle. A cost cap of £2,500 per property is the UK Government’s preferred option and landlords would be expected to financially contribute, up to £2,500, to ensure their property reaches at least an EPC rating of E.
(c) Relevant energy efficiency improvements - wall insulation: The Regulations recognise that certain wall insulation systems cannot, or should not, be installed on particular properties. The Regulations state that wall insulation will not be required if (i) the energy improvement works involve cavity wall insulation, external wall insulation or internal wall insulation (for external walls) and (ii) the landlord has received written expert advice confirming that the improvement works are not appropriate for the property due to the potential negative impact they would have on the property.
(d) Third party consent exemption, property devaluation exemption and temporary exemption due to recently becoming a landlord: These exemptions are all explained in more detail above.
Where a valid exemption applies, landlords must register the exemption on the PRS Exemptions Register.
It is important to note that once an exemption is registered on the PRS Exemptions Register it may not be passed over to a new owner or landlord upon a sale, or other transfer of the property. So, if a let property is sold or otherwise transferred with an exemption registered, the exemption will cease to be effective. The new owner will need to either improve the property to the minimum standard at that point, or register an exemption where one applies, if they intend to continue to let the property.
Why is this important?
Landlords who grant new lettings from 1 April 2018 will need to ensure that their properties have a minimum EPC rating of E, and if they do not, they must carry out works or register an exemption.
If Landlords have properties with EPC ratings of below E they should act now, to avoid potential loss of rent and/or penalties if they fail to comply with the Regulations.
Buyers purchasing properties which have an EPC rating of below E will need to bear in mind the additional expense of doing works which will bring the property up to the standard required by the Regulations.
Related news & insights
News / Ince advises London local authority trading company in £38m acquisition of 155 properties
26-05-2021 / Real Estate
Our Real Estate team recently advised local authority trading company, TBG Open Door Limited (part of The Barnet Group), on the acquisition of 155 properties in a deal worth £38 million.
News / Your future in the UK post-Brexit and post-Covid 19: what you need to know
08-04-2021 / Real Estate
Over the last twelve months, the United Kingdom (UK) like the rest of the world, has seen the COVID -19 pandemic impact hugely on our ability to travel freely, to relocate for business, work, investment and education. We now see some light at the end of the tunnel with the UK’s mass immunisation programme which has seen infection (and thankfully) mortality levels fall dramatically. This is finally giving people hope for the future, resulting in renewed interest in the UK as a safe place to live, to invest in, and as somewhere to educate their children.
News / Estate Agents & AML: Knock Knock Who’s There?
26-03-2021 / Real Estate
The Fifth Money Laundering Directive came into force in January 2020, extending the UK Money Laundering Regulations and implementation of regulatory controls to include real estate firms, real estate brokers, estate agents and rental intermediaries.
News / Ince launches first integrated technology and legal advisory know-your-customer (KYC) solution in the real estate sector
15-03-2021 / Real Estate
New digital client onboarding solution delivered in collaboration with leading technology providers eLegal, Yoti and Arachnys.
Insights / Seven top tips for creating overage (claw-back) agreements for property developments
03-09-2020 / Real Estate
Property development often involves uncertain outcomes, and the pandemic has highlighted that circumstances can change in unexpected ways.
News / How to mitigate potential issues when returning to work in let commercial properties
21-08-2020 / Real Estate
Shops may not be able to accommodate the government’s guidance on working safely during the pandemic in practical terms.