Changes to Minimum Energy Efficiency Standards coming into force 1 April 2023
9th March, 2023
The next stage of the government's aim to improve the energy efficiency of commercial property in England and Wales is just around the corner.
The minimum energy efficiency standards (MEES) for commercial property came into force in April 2018 making it unlawful to grant or renew a lease of a commercial property with an energy rating below band E (subject to certain exemptions).
The MEES rules are set to be tightened in a few weeks’ time so that from 1 April 2023 it will be unlawful to continue to let any commercial property with an energy rating below band E.
Where a property is let ( or after 1 April 2023 continues to be let) in breach of MEES the lease remains valid and in force but the landlord will potentially be exposed to penalties unless an exemption applies.
Exemptions
The main exemptions available to commercial landlords are:
- Consent – if the landlord has been unable to obtain any necessary third-party consents to undertake energy improvement works (e.g. the consent of the occupational tenant)
- 7 year pay-back test – improvements only need to be carried out if they are expected to deliver energy bills savings of at least the cost of the improvements (plus interest) within 7 years. The projected energy cost saving is calculated according to a formula in the MEES regulations.
- Devaluation – where the required improvement works would lead to a reduction of over 5% in a property’s capital or rental value (supported by expert valuation evidence)
Each of the exemptions last for 5 years and must be registered on the PRS Exemptions Register
For existing leases of non-compliant property any exemptions claimed by the landlord will need to be registered before 1 April 2023.
Properties which:
- Are not legally required to have an EPC (e.g. industrial sites, certain listed buildings, temporary buildings and buildings due for demolition)
- Do not have an EPC or the EPC is over 10 years old
- Are let on a tenancy for 6 months or less (unless the tenant has been in occupation for more than 12 months)
- Are let on a tenancy for a term of 99 years or more
- Are exempt from MEES
Penalties and Enforcement
MEES are enforced by local authorities and the penalties for breaching the legislation are linked to the rateable value of the relevant property.
- A breach of MEES for a period of less than 3 months may result in a financial penalty of 10% of the rateable value (with a minimum of £5,000 and a maximum of £50,000)
- A breach of MEES for a period of 3 months or more may result in a financial penalty of 20% of the rateable value (with a minimum of £10,000 and a maximum of £150,000)
Future
The government is consulting on proposals to raise the threshold from E to B by 2030 alongside other proposals to extend the general application and enforcement of MEES. So whilst many landlords may be prepared or unaffected by the upcoming changes to MEES in April 2023 this is by no means going to be the last change we will see and landlords should be preparing now for significant changes to the current regulations in the coming years.
If you have any questions about MEES or any other matter concerning Real Estate please do get in touch with Christina Kettlewell, or another of our expert Real Estate Solicitors.
Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
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