New legislation has come into force, tightening up the Minimum Energy Efficiency Standards (MEES) that must apply to commercial property. From 1 April 2023, it became unlawful for landlords to continue to let non-residential properties that are rated below an Energy Performance Certificate (EPC) level of E. Such properties that fall below this level are now classified as ‘substandard’ and without valid exemptions, landlords can face significant fines for breach of the MEES Regulations. This is currently a maximum of £150,000.
For many landlords, the new rules will mean carrying out improvements or registering an exemption. The current MEES Regulations only apply to a property where there is a valid EPC in place, with exemptions being available to some Listed Properties and properties with leases less than six months or over 99 years.
Three other key exemptions also include lack of consent – if the landlord has been unable to obtain consent from a third party to carry out the necessary energy improvement works, the seven-year payback test –if landlords can demonstrate that the necessary improvement works will not pay for themselves via energy bill savings over seven years, or devaluation – if the installation of the energy-improving works would reduce the market value of the commercial property.
Each of these exemptions would need to be proven and may need supporting evidence from an independent source – such as a Chartered Surveyor. Any must be registered on the PRS Exemptions Register and would need to be renewed upon its expiry date for the exemption to continue.
As it is not illegal to sell a property that is of a ‘substandard’ EPC rating, landlords will need to carry out due diligence in respect of properties they are looking to purchase. Where properties of interest have a low EPC rating, it may be possible to negotiate on the sale price with a view to needing to undertake upgrade works.
Landlords and Tenants alike will also need to consider these regulations in connection with proposed Lease terms to agree at Lease commencement on who is liable where any improvements become necessary.
Landlords should be aware that the MEES regulations are here to stay and are set to tighten even further in the years 2027 and 2030.
O’Donnell Solicitors’ Commercial Property team can help you navigate the MEES and EPC April 2023 updates. We can provide impartial expert advice on the best strategy, whether you are a landlord or tenant and can advise on how to deal with new or existing leases in relation to the Regulations or any potential disputes.
For more information, contact James O’Donnell at 01457 761 320 or email firstname.lastname@example.org