Pubs and hotels, particularly those with staff accommodation, which are energy-inefficient should be aware of the new Minimum Energy Efficiency Standard (MEES) which come into force in April 2018.
These mean that it will not be possible to rent out a commercial or residential property which does not meet minimum standards, currently equivalent to an EPC of lower than E, although it is important to note that this requirement may rise in future. It is estimated that about 18% of commercial property currently falls below this standard.
There will be a phased introduction of the obligation so that the MEES Regulations will apply to all new leases or lease renewals granted from 1st April 2018, and then to all commercial properties already let by 1st April 2023, in England and Wales. It is possible to register an exemption from the Regulations in certain circumstances – see below.
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If you have not already considered the impact of the Regulations you should ensure that you carry out an audit of your estate to ascertain whether you have any property with an F or G rating. Where this is the case, an Energy Efficiency Plan should be put in place to improve the energy efficiency of the property. You will need to assess the costs and benefits of improving energy efficiency and weigh these against other options such as disposal of the property and/or re-gearing the lease.
You will need to understand your rights under your property leases. Ideally you will plan to carry out energy efficiency improvements during void periods or lease breaks or include them as part of on-going maintenance.
Buying or selling a commercial property does not trigger the Landlord’s obligations under the MEES Regulations.
Which buildings and tenancies does MEES apply to?
- Only those buildings required to obtain an EPC will be within the scope of the MEES Regulations. For example; listed buildings and those marked for demolition will be exempt from the new requirements, as will industrial sites, workshops and holiday lets.
- The obligation to carry out works does not apply to commercial properties let for less than 6 months or for more than 99 years.
- The Regulations will not apply where there is no EPC or where the EPC is more than 10 years old.
If the MEES Regulations apply to your property you can continue to let it after April 2018 even if it is below the minimum standard if one of the following exceptions applies and you have registered it:
- Golden Rule – an independent assessor determines that all relevant energy efficiency improvements have been made to the property (e.g. insulation, double glazing etc) or the improvements that could be made would not pay for themselves through energy savings within 7 years;
- Devaluation – the work needed to bring the property up to an E rating would result in more than a 5% reduction in the value of the property; or
- Third Party Consent for the work cannot be obtained.
You must register an exemption with the PRS Exemptions Register. This is currently being piloted and will be available by 1 October 2017. An Exemption put on the register will last for 5 years in most cases.
NB: An exemption will not pass to a new owner or landlord on sale or transfer of the property.
Where a property is let or continues to be let in breach of the Regulations this does NOT affect the validity or enforceability of the tenancy/lease. However, the Local Weights and Measures Authorities will enforce the Regulations and may impose a financial penalty by reference to the property’s rateable value as follows:
- If the property has been rented out for fewer than 3 months in breach of the MEES Regulations a fine of 10% of the rateable value or £5,000, if greater, subject to a maximum penalty of £50,000.
- If the property has been rented out for longer than 3 months in breach of the MEES Regulations a fine of 20% of the rateable value or £10,000, if greater, subject to a maximum penalty of £150,000
- Ensure you have an energy efficiency assessment for each property so that you are aware of the EPC;
- Consider how to fund any necessary energy efficiency improvements;
- Consider when improvements should be carried out e.g. during periods of void.
The Government has produced comprehensive guidance for Landlords which can be found here.
The content of this page is a summary of the law in force at the present time and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.