The minimum energy efficiency standards (MEES) measures for commercial property have effect from 1 April 2018. This could mean landlords cannot let a property until the necessary standard has been met.
The regulations were introduced by the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (“the Regulations”). The Regulations differentiate between domestic and non-domestic (commercial) properties. For the purposes of this article we will focus on the non-domestic regulations.
The main purpose of the Regulations is to put a requirement on a landlord to ensure that their rented property reaches a minimum energy efficiency standard before they can be let. This is being implemented in multiple phases, starting 1 April 2018.
Critically, for non-domestic property Part 3 of the Regulations states that on or after 1 April 2018 a landlord may not grant a new tenancy or renew an existing tenancy of a property that falls short of the required standards. As at 1 April 2023, landlords will not be able to continue to let a non-domestic property at all if it fails to meet the required standards
What are the standards?
At the moment, for non-domestic property it is any property with an Energy Performance Certificate rating of E or above. Anything falling into rating category F or G will be deemed not to meet the standards. There are some exemptions which we will come to.
There is nothing preventing the threshold currently at band E being raised in the future.
What is the impact?
If a landlord of a sub-standard property wants to let that property after 1 April 2018, the landlord must:
Irrespective of whether the landlord can recover the funds from the tenant, obtain funding or afford the works required to meet the standards, the works must be carried out unless the landlord can satisfy an exemption.
What happens if I grant a lease?
If a lease is granted on a sub-standard property, the lease remains valid. A landlord cannot terminate or evict a tenant because the property is sub-standard. However, the landlord will be liable to enforcement action under the Regulations.
Exemptions
Landlords can register an exemption to compliance with the Regulations. These are:
There will be an exemptions register maintained by the Government. Exemptions last for five years and at the end of this period a landlord will have to register the exemption again.
Enforcement & Penalties
Enforcement for non-domestic property will be undertaken by the local weights and measures authority. The starting point is intended to be service of a compliance notice. This will form the request for further information in order to determine whether there has been a breach. A failure to comply with this notice can render a financial penalty of up to £5,000.
Where a landlord is found to be letting a sub-standard property within the preceding 18 months a penalty notice can be served. Penalties for a breach of less than 3 months can be the greater of up to £5,000 or 10% of the rateable value up to £50,000. For breaches of more than 3 months this increases to £10,000 and 20% of the rateable value up to £150,000.
A further penalty that can be issued is the “publication penalty”. The enforcement authority can post information on the register about a property for at least 12 months detailing the breaches, including the landlord and property information.
Action
Many leases currently being granted will now continue beyond 1 April 2023 or tenants will have rights to renew beyond that date and, as a result, these leases will be impacted by the Regulations. It is therefore important to address the issue now.
The approach to be taken will depend on whether it is being addressed from a landlord or a tenant perspective and the respective property to which it relates, but parties should carefully consider the terms of their leases.
Examples of points to consider would be:
These are just some of the points that would need to be considered when granting leases in light of the Regulations.
For further advice on the above or to ask a question please any member of our commercial property team in any one of our six offices.
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