The Minimum Energy Efficiency Standard (MEES) was introduced in March 2015 under the Energy Efficiency (Private Rented Property – England and Wales) Regulations 2015. Originating from the Energy Act 2011, the MEES regulations provide a new legal standard (for those properties which require an EPC) that provides opportunities and risks for landlords, occupiers who wish to sublet or assign space, developers, lenders and freehold investors.
Currently all commercial buildings have an energy efficiency rating that goes from A – G under the existing EPC framework. F & G are considered the worst performing buildings. The MEES legislation which comes into force in April 2018 means that public and private sector non-domestic landlords will not be able to grant a tenancy to new or existing tenants if their property has an EPC rating of band F or G. From 2023 landlords will not be able to lease buildings with an energy efficiency rating lower than E.
It is estimated that as much as 20% of UK commercial buildings would fail to meet the new standard.
However, there are exemptions in place which can be applied for where a property can demonstrate that compliance with the standards is economically unviable or where the building falls within one of the approved exemptions (see below).
Currently MEES does not apply to:
Determining whether a building and tenancy are within scope requires an analysis of the Energy Performance of Buildings (England and Wales) 2012 and the MEES regulations together to assess whether a property is liable for minimum standards.
As this legislation is largely going to affect landlords it is prudent to assume that any commercial property which doesn’t meet the minimum standards for 2018 and the further standards for 2023 will look to (where exemptions cannot be gained) either re-develop or sell the premises, or invest in capital works to retrofit and improve efficiency within the building. This is likely to:
Since the requirement to comply with the standards is the responsibility of the landlord (or where a tenant sublets space they are in effect a landlord) it is worth considering reviewing the current estate (either from a landlord or tenant perspective) and working together to create a viable plan for those buildings that are unlikely to meet the standards.
An EPC rated building may be eligible for an exemption where:
Exemptions must be registered on the central Government PRS Exemptions Register and any accepted exemptions will expire after 5 years and are not transferrable where a property is sold.
The MEES regulations will be enforced by the Local Weights and Measures Authorities (LWMA’s) and they will have powers to impose civil penalties which are set by reference to the properties rateable value.
The penalty for renting out a property for upto 3 months from the implementation of the standards will be equal to 10% of the property’s rateable value, subject to a minimum of £5,000 and a maximum of £50,000. Therefore, for periods beyond 3 months the penalty rises to 20% of the rateable value, subject to a minimum of £10,000 and a maximum of £150,000.
It is important for tenants to be aware than where there is a breach of the MEES standards or where a penalty is imposed the lease remains valid and in force, and as such this may have serious consequences where suitable clauses have not been agreed to deal with a material breach of the MEES.
The new MEES standards are a significant risk to both landlords, property owners and tenants where eligible buildings are currently rated with an EPC of F or G. However, given the current considerations from organisations to lease or rent high EPC properties (to reduce energy costs or to meet low carbon standards) it is anticipated that much of this discussion will have taken place already.
Beond can support both landlords and tenanted organisations in managing the MEES standards by:
Whilst the liability to meet MEES standards sits with the landlord (or property owner), Beond believes a joined up and considered strategy with both the landlord and tenant will achieve the best result for both parties. The transition of liability and cost will be a significant consideration for lease renewals through to April 2018 and as such due consideration should be placed on the optimum strategy to achieving MEES standards by the required dates.
Beond has significant expertise in: