Landlords: Are You Ready for the Minimum Energy Efficiency Standards?

Published on February 15, 2017 by Sarah Mac

From 1 April 2018, Minimum Energy Efficiency Standards (MEES) will take effect which will make it unlawful for landlords to grant new leases for properties that are not energy efficient.

The new regulations are derived from the 2011 Energy Act which required the government to set minimum energy performance standards for both domestic and non-domestic privately rented property.

After 1 April 2018, it will be unlawful in England and Wales to grant new leases for commercial or domestic properties that are classed as being non-energy efficient. The MEES are set out in the 2015 Energy Efficiency Regulations and class any property with an energy performance certificate (EPC) rating below E is non-energy efficient.

Exceptions to the Rules

There are some exceptions, however. In the following circumstances, the landlord will be exempt from the new rules:

1. Where the landlord has made cost effective energy efficiency improvements. Such improvements would have involved no upfront investment, either because they are cost effective over a seven year payback period, or because they cost of the work satisfied the ‘golden rule’ in a Green Deal plan.
2. Where the work required to boost the property up to an E rating would result in a 5 per cent reduction in the property’s value. This would have to be confirmed by an independent surveyor.
3. Where it has not been possible to obtain third party consent for the works required. This would include the consent of a tenant to enter the property to undertake the improvements.
4. Where a domestic property is not let under an assured or regulated tenancy or is let by a public landlord such as a housing association, local authority or government department.
5. Where a commercial property is let for less than six months or carries a lease of more than 99 years.

Lease renewals are also included in the regulations.

Key Dates and Messages

From 1 April 2023, landlords will not be able to continue to let a commercial property with an energy rating below E unless any of the exemptions apply. For domestic properties, the cut-off date is 1 April 2020.

The key message here for landlords is to carry out a portfolio review as soon as possible in order to identify any properties currently rating F and G, which will become unmarketable after 2018. A strategy to make improvements in these cases is vital, as is factoring the new rules into your lease provisions.

Amending Lease Provisions

Leases should be updated in light of the new regulations to include various new provisions. These might include:

1. A requirement for the tenant to cover the costs of any required energy efficiency improvement works (bearing in mind it will be the tenant which benefits from such improvements).
2. A right for the landlord to enter the premises to undertake energy efficiency improvement works providing the tenant is in agreement. If the tenant does not give its consent then the landlord will be in a position to take advantage of the third party consent exemption (point 3 above).
3. A covenant preventing the tenant from applying for an energy performance certificate in respect of the property without the landlord’s prior consent. This is to avoid a scenario whereby the landlord’s EPC is replaced by a later EPC with a rating below E.
4. A prohibition on alterations that would usually be permitted, if those alterations would have the potential to adversely affect the energy performance rating of the property.

Whilst the new rules are not due in for another year, in the scheme of things this does not provide a great deal of time to make any necessary changes to your properties in order to comply. Urgent attention is a must.

Like this content? We'd really appreciate a share!