Commercial Letting - Minimum Energy Efficient Standards

Commercial Letting - Minimum Energy Efficient Standards

18 February 2020 Katy Williams

What are the Minimum Energy Efficient Standards (MEES)?

The minimum energy efficiency standards (MEES) where introduced under the Energy Efficiency (Private Rental Property) (England and Wales) Regulations 2015 and since April 2018 prohibit the grant of a lease of commercial property with an energy performance rating below level E unless the landlord:

  1. carries out energy efficiency improvements; or
  2. can demonstrate the property qualifies as exempt.

This restriction applies equally to the grant of a renewal lease or lease extension and from April 2023 will extend to any lease in operation.

Exemptions

A letting is exempt from complying with MEES if any of the following apply:

  1. a)    an independent assessor determines that all relevant energy efficiency improvements have been made to the property or that improvements that could be made, but have not been made, would not pay for themselves through energy savings within seven years; or
  2. b)    any consent required from a third party (ie. a tenant, a superior landlord or planning authorities) to carry out energy efficiency improvement works has been refused or has been given with conditions that cannot reasonably be complied with; or
  3. c)    an independent surveyor is of the opinion that the relevant energy efficiency improvements that could be made to the property are likely to reduce its market value by more than 5%.

Any exemption claimed must be registered on the central government PRS Exemptions Register and if accepted is valid for five years only and cannot be transferred. However, the registration of false or misleading information on the PRS Exemption Register can result in a financial penalty of up to £5,000.

MEES do not currently apply to lettings of up to 6 months (unless the tenant has previously been in occupation for more than 12 months) or over 99 years, nor to property of a type which is not required to have an energy performance certificate (e.g. a property that has no climate control or heating system and a standalone building with a total useful floor area of less than 50 metres squared).

However, it should not be assumed that listed a building or a building in a conservation area is excluded from MEES as government guidance indicates this depends on whether the character or appearance of the building would be unacceptably altered by the works and in the case of any doubt advice should be sought from the local authority’s conservation officer.

The impact on Commercial Property landlords

Although the failure to comply with MEES does not invalidate a lease, nor does it impose an obligation on a landlord to carry out energy efficiency improvement works, failure to comply with MEES can result in financial penalties which range from £5,000 to £50,000 (if the breach continues for less than 3 months) and from £10,000 to £150,000 (if the breach continues in excess of 3 months).

In addition, a landlord who owns a property with an energy efficiency rating below level E may be prevented from holding that property in a pension scheme unless improvements are carried out to increase the energy efficiency level of the property and a tenant of a property which does not satisfy MEEs could find their ability to sublet the property in future is adversely affected.

Given the financial implications of MEES and also the overall risk that MEES can affect the marketability of a property in future then it is advised that commercial buyers/ landlords (and tenants intending to sublet in future) seek specialist advice from a energy assessor to establish the current energy efficiency levels of a property requiring an energy performance certificate and improvement measures (if any) that may need to be taken.

The future of MEES

It is also worth noting that in a recent consultation the government has indicated its intention to review the minimum energy efficiency regulations to achieve a minimum energy efficiency rating of band level B or C by 2030 and it is anticipated that this will be achieved by increasing the MEES minimum energy efficiency level rating of E incrementally in future.

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