From 1st April 2023, the next stage of the Minimum Energy Efficiency Standards requirements will come into force which all landlords of commercial property in England and Wales will need to be aware of.
What are the Minimum Energy Efficiency Standards Regulations?
The Minimum Energy Efficiency Standards (MEES), established in The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015, were implemented in April 2018.
The MEES Regulations require a minimum energy efficiency standard to be met before properties in England and Wales can be let in certain circumstances. The MEES Regulations are intended to improve the energy efficiency of both residential and commercial private rented property, as required by the Energy Act 2011.
The MEES Regulations require that landlords granting a new lease of a commercial premises must hold an energy performance certificate (EPC) with a rating of E or above, unless they have registered a valid exemption. Commercial properties with an EPC rating of F or G are considered “sub-standard”.
Currently, a landlord of sub-standard property must not grant any new leases, unless either of the following apply:
The landlord makes sufficient energy efficiency improvements to the property, so that it is no longer sub-standard.
The landlord claims a legitimate reason under the MEES Regulations not to do so, and this has been validly registered on the PRS Exemptions Register.
From 1st April 2023, a landlord of sub-standard property must not continue any existing leases either.
A landlord does not need an EPC if they can demonstrate that the building is any of the following:
listed or officially protected and the minimum energy performance requirements would unacceptably alter it.
a temporary building only going to be used for 2 years or less.
used as a place of worship or for other religious activities.
an industrial site, workshop, or non-residential agricultural building that doesn’t use much energy.
a detached building with a total floor space under 50 square metres.
due to be demolished by the seller or landlord and they have all the relevant planning and conservation consents.
The landlord must enter the relevant details of the exemption on the PRS Exemptions Register to avoid enforcement action.
Further, if all the relevant energy efficiency improvements for the property have been made (or there are none that can be made) and the property remains sub-standard then the landlord may register this information on the PRS Exemptions Register to avoid enforcement action.
Property which does not currently have a valid EPC (or a requirement to obtain one)
Where a property does not have a valid EPC at the point when compliance with MEES is being assessed, the MEES regime does not apply. This is because there is no benchmark of whether the property is sub-standard or not.
If there is no existing valid EPC, then the landlord must consider whether the current transaction means that a new EPC should be commissioned. Under the EPC Regulations a valid EPC must be produced on the grant of most new leases. If the EPC shows the property to be sub-standard, the landlord will have to consider what energy efficiency improvements can be carried out, or whether it can claim an exemption (as above).
What happens if a lease is granted or continued in breach of the MEES Regulations?
If the landlord chooses to let the property (currently) or continue an existing letting (on or after 1 April 2023) without making the improvements and does not have a legitimate reason for failing to make those improvements, the landlord will run the risk of enforcement action. This could include fines and public exposure of the landlord’s unjustified failure to comply with the MEES Regulations.
The financial penalty for non-domestic/commercial rented property which has been in breach for less than three months is £5,000 or 10% of the rateable value of the property (up to a maximum of £50,000), whichever is higher. The penalty for non-domestic privately rented property which has been in breach for more than three months is £10,000 or 20% of the rateable value of the property (up to a maximum of £150,000).
The enforcement authority can impose a publication penalty in addition to or in substitution for a financial penalty. Details about the breach will be entered by the enforcement authority on the publicly accessible part of the PRS Exemptions Register.
For advice on commercial property law and your obligations as a landlord, please contact Farleys’ commercial property specialists on 0845 287 0939 or contact the team by email.