What minimum energy efficiency standards (MEES) mean for non-domestic landlords
In its bid to achieve carbon reduction targets for 2020 and 2050, the government is introducing new regulations next year designed to boost the energy efficiency of older, rented properties in England and Wales.
Whether your portfolio comprises offices, shops or other business premises, the changes are likely to affect you. The clock is ticking, so you need to start taking steps to ensure that all of your buildings comply with the regulations by next year.
To help, here's a brief rundown of what MEES is, and what it means for you:
What is MEES?
The new minimum energy efficiency standards (MEES) set out that any leased properties will need to have an Energy Performance Certificate (EPC) rating of at least E. The rules will initially apply to grants of new tenancies or renewals after 1 April; though from April 2023, they will be extended to all properties, even if the tenancy arrangement hasn't changed.
Are there exclusions?
The MEES applies to mainly all non-domestic properties, let under any tenancy type, which by law must have an EPC. But there are several exclusions, such as:
- Leases for less than 6 months or more than 99 years.
- Buildings used as places of worship and for religious activities.
- Temporary buildings with a planned service life of two years maximum.
- Industrial sites, workshops, non-residential agricultural buildings with low energy demand and agricultural buildings used by a sector covered by a national sectoral agreement on energy performance.
- Buildings deemed "officially protected" as part of a designated environment or due to their special architectural or historic merit, where MEES compliance would unsatisfactorily change their character or appearance.
Are there penalties for non-compliance?
If you fail to bring your building up to the energy efficiency standard required, you could face a number of penalties. Long-term breaches on high value properties could end up being incredibly costly, as the fines are determined by rateable value.
So, if you are found to be renting out a non-compliant property and are within 3 months of breach, you will face a fine of up to either £5,000 or 10% or rateable value (maximum £50,000) – whichever amount is greater. If you are 3 or more months in breach, you could end up paying a fine of up to £10,000 or 20% of the property's rateable value (maximum £150,000) – again, whichever sum is greater.
Providing false or misleading information, or failing to comply with a compliance notice, could also cost you £5,000. And that's not all: in any case of breach, your non-compliance will be published, essentially meaning that you'll be 'named and shamed' – which could very well end up tarnishing your reputation.
Aside from the financial implications of breaching the regulations, there are a number of other issues related to having sub-standard buildings within your portfolio, such as marketability; availability of finance; and the effect on rent reviews where the open market is unfavourably impacted by energy performance.
What if I own properties that can't be brought up to standard?
If you are unable to bring any of your properties up to standard in spite of carrying out 'relevant improvements,' then you are able to register a 5-year exemption via the PRS Exemptions Register, but you must be able to provide evidence.
What should I be doing?
Many landlords will already be reviewing their portfolios to determine whether their properties are already compliant, uncertified, or non-compliant and requiring energy efficiency improvements. If you have reviewed your portfolio's EPCS and identified non-compliant properties, you should:
- Review leases to determine expiry and/or renewal dates.
- Verify the accuracy of EPC ratings by conducting energy assessments.
- Review leases to understand legal rights and liabilities, and to determine whether clauses permit works to be carried out, by whom and at whose cost.
- Understand how the lease terms, break and renewal dates fit within the MEES timetable of implementation.
- Devise a strategy for carrying out all necessary work to the relevant commercial properties.
Where can I find out more?
More information – including the full details of properties exempt from the new standards – can be found within The Non-Domestic Private Rented Property Minimum Standard guidance from the Department for Business, Energy & Industrial Strategy.
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