In this article Anna Duffy outlines why Landlords need to beware of the MEES (Minimum Energy Efficiency Standards) Regulations intended to improve the energy efficiency of both residential and commercial private rented property.
Minimum Energy Efficiency Standards
The Minimum Energy Efficiency Standards are measured by reference to the energy performance Certificate (EPC) rating of a property. The current benchmark of “sub-standard” is where the property has an EPC with a rating of F or G. From 1st April 2023 properties must have an EPC rate of E or higher otherwise it will be an offence to continue to let or rent out a property
It has been indicated that these requirements will tighten again with a proposal that commercial properties must have an EPC rating of C or higher by 1 April 2027, and B or better by 2030.
Landlords should consider whether the property is exempt.
Exemptions
Type of Property
- Properties that do not use energy – heating or aircon eg warehouses.
- Temporary buildings (with an intended life of 2 years or less)
- Listed buildings if compliance would unacceptably alter their character or appearance.
- Small buildings which are standalone of less than 50 m2;
- Industrial site or workshop with low energy demand;
- Properties to be demolished
Consent
If one of the below has happened during the previous five years, the owner may be able to claim an exemption:
- a tenant has refused to permit the landlord to carry out the works, where this is required
- an occupier of the same building has refused to consent to the works
- a third party whose consent is required has refused consent or has attached onerous conditions to that consent with which the owner could not reasonably comply
- a lender with a charge over the property has refused to consent to the works
- the local planning authority has not given planning permission where this is required
- a party such as English Heritage has not given permission where this is required.
This exemption will last until the earliest of the following events:
- the disposal of the property by the owner, at which point the new owner will have to decide whether to apply for a fresh exemption
- the determination of the lease held by the tenant who refused consent
- the determination of any third party right where that third party has withheld consent
- the expiry of five years, although again the date on which the five-year period commenced may be arguable
- the completion of works to improve the EPC rating so that the building is compliant.
Devaluation
If both of the following apply during the previous five years, the owner may be able to claim an exemption:
- the landlord has obtained an independent valuation which advises that making the relevant improvements would reduce the market value of the property, or of the building where the property is situated, by more than 5%; and
- the exemption has been registered correctly on the PRS Exemptions Register.
This exemption will last until the earlier of the following:
- the disposal of the property by the owner, at which point the new owner will have to decide whether to apply for a fresh exemption
- five years
- the date on which works are completed so that the property is no longer non-compliant.
Short-Term Letting Exception
In certain circumstances, a landlord is given six months to comply with the prohibition on letting sub-standard property so that it has time to assess and complete the works, or to apply for a longer-term exemption. However, this only applies where there is an existing tenancy; it does not apply to new lettings.
Solid Wall Insulation
- If the property contains a certain type of cavity or other wall insulation, there may be an exemption. At present this only applies to residential properties, for the same period as where the works have been done or there are no works to do.
Recovery of improvement costs
This depends on the contractual provisions within the leases – RICS Service Charges for commercial properties states
“Subject to the terms of the lease and the principles set out in the professional statements, any subsequent costs of improving energy efficiency might comprise a legitimate service charge item, as long as there is a proportionate cost benefit to tenants.”
There will be some complexities in recovering the improvements if they are made to individual properties as opposed to the common parts.
For further details and advice on MEES please contact Anna Duffy at anna.duffy@dtmlegal.com
