The Department for Business, Energy and Industrial Strategy (BEIS) have released new guidelines for Landlords and enforcement authorities on the minimum level of energy efficiency required to let non-domestic properties.
Changes in regulation
The Department for Business, Energy and Industrial Strategy (BEIS) have released new guidelines for Landlords and enforcement authorities on the minimum level of energy efficiency required to let non-domestic properties.
From the 1st April 2018 there will be a requirement for any privately rented properties to reach an Energy Performance Certification (EPC) rating of E or above before granting tenancy to new or existing tenants. After 1st April 2023, Landlords must not continue to let any building which has an EPC rating of less than E unless the Landlord registers an exemption.
What is Minimum Energy Efficiency Standards (MEES)
The built environment has been identified as a major contributor to Greenhouse Gas (GHG) emissions with an estimated 18% of commercial properties holding an EPC rating of F or G. If the UK is to meet its carbon reduction targets for 2020 to 2050, improvements need to be made to the percentage of properties which are currently falling below the governments energy efficiency baseline.
MEES was introduced in March 2015 by the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 and is targeted at addressing energy inefficiencies in the UK’s older building stock. These regulations make it unlawful for Landlords to grant a new lease for properties that have an energy performance certificate (EPC) rating below E from the 1st April 2018. These regulations apply to both commercial and domestic rented properties and include lease renewals.
An additional requirement will be placed on Private Landlords of commercial properties from 1st April 2023. Landlords will not be permitted to continue to let a property (even if there have been no changes in the tenancy agreement) with an EPC rating of below E.
Implications of MEES
MEES will make it impossible to market properties which fall below an EPC rating of E. Whilst MEES will not affect the sale of properties, it may impact the valuation of such properties and have associated implications for secured lending. It is also anticipated that rent reviews on ‘F’ and ‘G’ rated properties will be affected and there may also be implications on dilapidation assessments.
Exemptions
The Government is currently piloting their Exemptions Register which will be available on gov.uk by 1st October 2017. Landlords who wish to register an exemption for a non-domestic property should e-mail the BEIS minimum standards team PRSregisteraccess@beis.gov.uk.
There are three exemptions which will allow Landlords to let properties which do not meet the relevant EPC rating:
- Cost effectiveness – There are no Green Deals available for the recommended improvements. The site has been independently assessed and the recommended improvements would not pay for themselves over seven years.
- Third Party Consent – The Landlord was not able to make necessary improvements because a third party (lender, freeholder or tenant) refused to grant consent.
- Devaluation – An independent surveyor determines the energy efficiency improvements will decrease the market value of the property by more than 5%.
Penalties for non-compliance
Failure to comply with the MEES regulations will result in a financial penalty or publication penalty or both. Penalties are largely basis on the rateable value of a commercial property with a maximum fine of £150,000 (per asset).
If the breach is less than three months:
- Commercial Property – £5,000 or 10% of the rateable value (up to £50,000)
If the breach is more than three months:
- Commercial Property – £10,000 or 20% of the rateable value (up to £150,000)
How to ensure you are compliant
There are five steps to ensuring you remain compliant:
Step 1 – Review your EPC portfolio
Step 2 – Review the status of your tenancies
Step 3 – Identify the scope you require for your MEES assessment
Step 4 – Source EPC surveys
Step 5 – Undertake a transparent and informative MEES assessment
How ETS can help
Our consultants are able to help guide you through the requirements of the new MEES regulations and ensure you remain complaint. If you would like more information, or to speak to one of our Senior Consultants, please contact our team on 0117 379 0850 or email us on: enquires@energy-ts.com.