Minimum Energy Efficiency Standards (MEES for short) are the current buzz words in the property industry. If you’ve not heard of them yet and you are a landlord of either (or both) residential and commercial property, now is the time to sit up and take notice.
What are MEES?
In essence it means that landlords with properties with an EPC rating of less than "E" will have to carry out works to improve the energy performance of a building in order to let or continue letting the building or face penalties.
They apply to both residential and commercial buildings, which are required to have an EPC certificate, although they do not apply to tenancies of less than 6 months but more than 99 years.
The history lesson in a nutshell
MEES were brought into force by the catchily titled "The Energy Efficiency (Private Rented Property)(England and Wales) Regulations 2015, which came into force on 1 April 2016."
It all started with an EU directive, which manifested itself into Section 49 of the Energy Act 2011. This required the Secretary of State to make regulations by April 2018 to ensure that landlords were required to achieve a certain level of energy efficiency in private rented property in England and Wales, before those landlords could let properties.
Guidance on the Regulations has now been published.
Key dates
MEES have already partially come into effect for residential premises.
From 1 April 2016 residential tenants under assured or rent act tenancies could request landlord consent, which must not be unreasonably withheld to carry out energy efficiency improvements to the property unless the landlord proposed alternative improvements or exemptions applied. So far this has not been widely used as the Green Deal, which was available to residential tenants to make improvements has, at this time, been withdrawn.
Otherwise, they are yet to come into force but the dates are fast approaching:
- From 1 April 2018 - it will be unlawful to grant a new lease of residential or commercial premises with an EPC rating of less than E.
- From 1 April 2020 - it will apply to all residential lettings (both new and existing)
- From 1 April 2023 - it will apply to all existing commercial lettings so it will be unlawful to continue to let properties with an EPC rating below an E.
Enforcement
If a landlord lets or continues to let a sub-standard property in breach of the Regulations, the lease will still be valid, but the landlord could be subject to some hefty fines.
For commercial property, a breach of up to three months could result in a fine of up to £50,000 fine, and a breach of three months or more could result in a maximum fine of £150,000.
For residential property, the penalties are up to £2,000 if the breach is for less than 3 months and £4,000 if more than 3 months.
In addition landlords in breach could also be subject to a publication penalty, which is designed to publicly shame landlords who fail to comply with the Regulations.
Enforcement action will be carried out by Trading Standards and it is thought that local authorities will be able to retain any penalties collected.
Exemptions
There are a number of exemptions, which if applicable, means that a landlord can let or, later, continue to let properties with an EPC rating of below an ‘E’ without having to carry out any energy efficiency improvement works.
Exemptions need to be registered before 1 April 2018, otherwise a landlord will be in breach of the Regulations and subject to enforcement action. The exemptions register opened on 1 April 2017 and landlords should therefore be taking steps now to register any exemptions.
The exemptions are:
1. The 7 year payback test - the capital cost of required energy efficiency measures is not cost effective within a 7 year period.
2. Third party consent - despite reasonable endeavours, necessary third party consents to carry out the works cannot be obtained. The guidance clarifies that reasonable endeavours means that consent will need to be sought on a number of separate occasions and using a number of available means of communication to secure agreement. Third party includes tenants, superior landlords, mortgagees, but also statutory consents such as planning permission.
3. Property devaluation - where the improvements proposed would reduce the value of the property by 5% or more.
4. Recently becoming a landlord - a temporary 6 month exemption and only applies in certain situations for example, 1954 Act renewals or where a former tenant calls for an overriding lease under the 1995 Covenants Act), or where the landlord acquires the property subject to an existing lease.
The exemptions last for 5 years, after which time the landlord will need to establish an exemption again. If a property is sold, a new landlord will need to re-establish and re-register an exemption. The fact that the previous owner had a valid exemption is irrelevant.
What should landlords be doing now?
If landlords have not done so already, they should audit their portfolios to ascertain which properties are (or may be at risk of becoming) sub-standard for the purposes of the Regulations. Buyers of investment properties should consider carefully whether they will be able to let, or continue to let, the target property without incurring substantial costs.
If properties are sub-standard, then steps need to be taken to either carry out improvement works, or investigate whether an exemption applies and ensure it is registered. The guidance provides more details on what landlords need to provide to register an exemption. A link to the guidance is below.
Tenants should also beware as the Regulations apply to sub-lettings, so sub-standard properties are not just a problem for owners, as every tenant who has the right to sub-let is a potential landlord.
Looking ahead
The UK has committed to an 80% reduction in carbon emissions by 2050. The Regulations form part of a sustained targeting of the built environment which has, in recent years, brought about EPCs, the CRC Energy Efficiency Scheme, the Energy Efficiency Opportunity Scheme, the District Heat Network Regulations and a continuous ratcheting-up of Part L of the Building Regulations.
The Regulations are set to be reviewed in 2020. However, our view is that this is likely to lead to a tightening of the ratings and/or stricter criteria for preparing an EPC, which may mean that more properties could ultimately fall foul of the Regulations.
