From the 1st of April, 2018, landlords could face fines of up to £150,000 if their rented property falls below the Minimum Energy Efficiency Standards (MEES) introduced in March 2016.
The MEES is a government project for enhancing commercial and private building efficiency in England and Wales. Leasing of properties with an Energy Performance Certificate (EPC) below ‘E’ will be considered illegal under its regulations and any landlord who continues to lease new or existing buildings that don’t meet the MEES regulation from the 1st of April 2023 will be in breach. New properties can also have poor energy performance and this causes problems for landlords.
These possible legal problems can be avoided if landlords take pre-emptive measures like reviewing the terms of new and existing leases to ensure that MEES standards are met.
Questions Landlords Should Ask:
- Who finances essential works concerning energy efficiency?
- How will MEES affect rent, service charges, and landlords’ approach to negligence claims?
- What clauses in the rental agreement can stop tenants from triggering MEES by getting an EPC certificate?
- What lease clauses will prevent tenants from making modifications that can ruin a property’s EPC rating?
- What clauses govern the inspections of a property for MEES purposes?
If a property’s EPC rating is below ‘E’, the landlord is expected to improve its energy efficiency to match or exceed the minimum standards or face civil penalties. These penalties may include the £150,000 fine. Alternatively, a new EPC triggered on an already assessed property could lower that property’s asset rating. Hence, an ‘E’ rating could be reduced to an ‘F’.
There are three criteria for exceptions:
- Where the landlord can show that he has made required upgrades that are cost-effective beyond a seven-year payback period.
- Where the improvements required to attain an ‘E’ rating would devalue the property by more than 5%.
- Where the landlord cannot obtain the necessary third-party consent for the required works.
Other exceptions could be:
- For temporary lettings under six months and leases over 99 years.
- For lettings by local authorities, housing associations, the government, and other public landlords.
These exceptions come with harsh rules and landlords may need to talk to a surveyor or lawyer to verify a claim. Exceptions must be noted on a regularly-reviewed register and are limited to a five-year period.
A Way Out for Landlords
Property developers, investors, and their funders, need to consider the intricacies of the MEES, the environmental costs that accompany it, and the threat it poses to the rental potential of properties. They should evaluate their portfolios immediately to distinguish properties with MEES ratings of ‘F’ and ‘G’ and conduct energy efficiency improvement before 2018.
The MEES regulation does not affect property sales. In Scotland, however, its counterpart restricts both letting and sales of commercial properties that are not energy efficient, and the basis for assessment varies from that of England and Wales. Although this can translate to identical properties attaining different EPC ratings, a uniformity is expected in time.
Northern Ireland, alternatively, does not have an equivalent legislation, but have prepared a draft Climate Change Bill.