Minimum Energy Efficiency Standards (MEES)
Minimum Energy Efficiency Standards (MEES)
The Minimum Energy Efficiency Standards (MEES) were initially implemented in April 2018 and require that when granting a new lease, commercial premises must possess an energy performance certificate (EPC) with a rating of E or above, unless the landlord has registered a valid exemption which must be logged within a public register alongside supplementary evidence. Under the current Standards, commercial properties with an EPC rating of F or G would therefore be considered ‘sub-standard’.
With effect from 1 April 2023, the MEES will become more stringent and it will no longer be lawful for landlords to let ‘sub-standard’ commercial properties, even for existing leases, unless all possible cost-effective energy saving improvements stipulated by MEES have been made or a valid exemption has been registered. Exemptions are not inherited, meaning landlords must be particularly vigilant when acquiring tenanted commercial properties.
Who is impacted by the Minimum Energy Efficiency Standards?
MEES regulations apply to all non-domestic properties legally obligated to possess an EPC and which are let under either a regulated, assured, or domestic agricultural tenancy. The regulations do not apply to tenancies shorter than six months without a renewal option, or greater than 99 years. Headleases under 99 years may require review to determine which landlord is liable under MEES regulations.
Landlords are expected to fund any energy efficiency improvements that may be required in order to ensure compliance with the MEES regulations, although depending on provisions within the existing lease some costs may be recoverable from the tenant(s).
Existing lease provisions will also determine the landlord’s right to enter the premises for the purposes of conducting energy efficiency improvement works. Note that tenant consent may be required in this regard, and if this cannot be obtained then landlords may be eligible to register a third-party consent exemption.
Lenders may also need to consider the impact of MEES regulations on the value of their security and the potential risk of payment default due to costs associated with non-compliance. Lending criteria may also need to be adjusted to reflect the MEES regulations.
Consequences of Non-compliance
Landlords must ensure commercial properties are compliant with the new MEES regulations by 1 April 2023, or exemptions are registered, or they will become liable to receive financial penalties for letting non-compliant properties.
For periods under three months, letting non-compliant properties may be fined 10% of the rateable value up to a maximum of value of £50,000. For periods longer than 3 months, this fine will increase to 20% of the rateable value up to a maximum of £150,000.
As such, the costs associated with making the energy efficiency alterations required for compliance with the new MEES regulations may be preferable to the potential costs for non-compliance.
Details of breaches may also be publicly available within the Private Rented Sector (PRS) Exemptions Register, which presents significant reputational risks for landlords with large or high-profile portfolios.
Considerations for Landlords
With the deadline now less than two weeks away, landlords must act now to ensure compliance with MEES regulations. All premises should be checked to ensure EPC ratings are sufficient, and where they are not sufficient landlords should either register suitable exemptions or consider making cost-effective energy efficiency improvements which would bring the property up to the required EPC standard.
Landlords considering commercial property acquisitions should factor the requirement to make energy efficiency alterations into purchase price negotiations. Energy efficiency alterations may also increase the value of the property in the longer term. Note that landlords purchasing sub-standard tenanted properties can register a six-month exemption in order to make the necessary alterations to increase the overall energy efficiency rating for the property.
The Government intends for all rented non-domestic properties to achieve an EPC rating of C or greater by 2027, and B or greater by 2030, as part of their commitment to achieve Net Zero carbon emissions targets. Adhering to the new MEES regulations will therefore ensure landlords are well-positioned to comply with these future legislative requirements, as well as avoiding the financial implications associated with non-compliance or costly energy efficiency improvements under MEES.
If you have any questions relating to the Minimum Energy Efficiency Standards or the EPC Rating of your property, please contact a member of the Commercial Property team.