Further to our Energy Insight Report published on the 27^th April 2017 (https://beondgroup.com/be-informed/minimum-energy-efficiency-standard-april-2018/) we are releasing an updated Insight Report to ensure energy consumers are prepared for the forthcoming Minimum Energy Efficiency Standards which commence in April 2018.

 The Minimum Energy Efficiency Standard (MEES) was introduced in 2015 and enforces a minimum energy efficiency standard for non-domestic (private and public sector) and domestic properties which are leased – based on the underlying requirement for an Energy Performance Certificate (EPC). Our report considers the non-domestic sector only.

For properties in England and Wales (separate legislation exists in Scotland) that are required to hold an Energy Performance Certificate (EPC – see below), the regulations contain provisions for a minimum energy performance rating of E. This means that any properties which currently or are anticipated to hold an F or G EPC rating will be required to install energy efficiency improvements or consider whether any exemptions exist.

Subject to certain requirements and exemptions, the following dates are applicable:

• From 1^st April 2018 – landlords of non-domestic private and public-sector properties may not grant a tenancy to new or existing tenants if the property holds a valid EPC rating of F or G subject to the requirement for an EPC to exist on the property.
• From 1^st April 2023 – landlords must not continue to let a non-domestic property which is already occupied if the property holds a valid EPC rating of F or G.

All property not meeting the minimum standards as set out above will be classified as ‘sub-standard property’ and all enforcement will be managed by the Local Weights and Measures Authority.

It is important to note that MEES is aimed at landlords (both private and public sector) and it is the responsibility of each landlord to ensure that the property meets the requirements or is exempt from the legislation (see below). For those organisations currently leasing or looking to lease property, due attention should be placed on any obligations within existing or proposed tenancy agreements for any pass-through of cost or obligation.

The regulations will not cover:

• Any non-domestic properties which are let on a certain term not exceeding 6 months (unless the tenancy agreement includes provisions for renewing or extending the lease beyond 6 months) or a certain term exceeding 99 years;
• Where properties are occupied under other arrangements, such as let on license or agreement for lease arrangements.

Currently the legislation covers all non-domestic and domestic properties which are legally required to hold an Energy Performance Certificate.

An EPC is only required where a building is constructed, sold or leased. For the purposes of clarity, the definition of a building is one which has a roof, walls and uses energy to condition the indoor climate (heating, mechanical ventilation or air-conditioning).

Where a building falls into one of these categories it is required to obtain an EPC certificate showing the energy efficiency of the building together with a report detailing observations to improve the rating.

An EPC certificate is valid for 10 years or until a newer EPC is produced and advice should be taken on the requirement for an EPC based on current guidelines. Various exemptions exist which can be advised upon by Beond, although current legislation dictates that stand-alone buildings with a total useful floor area of less than 50m² do not require an EPC. Our expert compliance team can work with you to determine whether your portfolio is exempt from EPCs and MEES.

Currently the following scenarios are an interpretation of the MEES legislation:

Stage 1 (April 2018):

• All property with a valid EPC will be required to comply with MEES where the property is leased, re-leased or there is a variation to the existing lease which requires a new EPC (boundaries etc).
• All property with a lapsed EPC (i.e. the EPC is over 10-years old) will only be required to comply with MEES where the property is leased to a new tenant or is a new construction (this includes material re-construction or change to a property).
• Where an EPC has lapsed and there is no material change to the building then a new EPC will not be required for a lease renewal and will not be required to comply with MEES.
• Properties offering exemption to MEES will be required to submit an exemption together with evidence on to the PRS Exemption Register.

Stage 2 (April 2023):

• All property regardless of lease will be required to comply with MEES where there is a valid EPC in place or where there is a requirement to undertake a new EPC – covering both under regulations or where a voluntary EPC is undertaken.

There are four scenarios determined within the BEIS guidance document which helps to further illustrate the interlinkage between an EPC and MEES.

Scenario one

A landlord intends to let a property on a new lease from April 2018: If the property already has an EPC which is less than 10 years old then this EPC can be used to let the property. If the EPC is more than 10 years old, or if there is no EPC, then the landlord will be required to obtain a new EPC to market and let the property. If that EPC shows an energy efficiency rating of F or G then the landlord will need to carry out sufficient energy efficiency improvement works to improve the property to a minimum of E (or register a valid exemption if applicable) before issuing a tenancy agreement.

Scenario two

A property let on a 10-year lease with an F rated EPC obtained, as legally required, in 2015: On 1 April 2023 the landlord is continuing to let the property and will have to comply with the minimum energy efficiency provisions because there is a valid EPC which the landlord was required to obtain (the EPC will continue to be valid until 2025).

Scenario three

A property let on a 20-year lease with an F rated EPC obtained in 2012: On 1 April 2023 the landlord is continuing to let the property but, in this scenario, will not be captured by the minimum energy efficiency provisions because the EPC expired in 2022, and there is no legal requirement on the landlord to obtain a new one at that point (because the tenancy is ongoing). The landlord will only be required to obtain a new EPC (which will trigger a need to comply with the minimum energy efficiency provisions) if they intend to re-let the property (to the current tenant, or to a new tenant) once the current lease expires, or if they (or their tenant) modify the property in a manner which would require a new EPC.

Scenario four

Based on scenario three, if the tenant in 2025 wishes to sublet the property, the tenant (who will become a sub-landlord) will be required to obtain an EPC to market the property. If this EPC shows an F or a G rating then the landlord will need to comply with the minimum energy efficiency provisions because the property now has a valid, legally required, EPC.

While the obligation to comply or exempt property under MEES is to be enforced to the property owner there is still considerable risk to both parties based on:

• Ensuring as a landlord / property owner that all steps are taken to understand the obligations under MEES and EPCs – to ensure efficiencies are put in place or exemptions are recorded with evidence.
• Managing a portfolio estate as a leaseholder to assess each site against the MEES obligations to determine if a site is at risk either at a renewal period or at 2023 depending on the EPC eligibility.
• Managing the contractual agreements between a landlord and a leaseholder to assess where the liability is for funding energy efficiency improvements and acting accordingly.

Beond has significant expertise in:

• Understanding and evaluating the impact of legislation & regulation for our clients – in particular, advising on EPC eligibility and compliance to MEES.
• Auditing and understanding the available options for building efficiency and energy reduction, and managing the link to protect the supply contract structure.
• Achieving complete whole of market tendering for energy efficiency and reduction technologies as a completely technology independent consultancy.
• Bringing new technology to our clients by engaging with innovative and emerging solution providers to take advantage of the latest advances.