There is now less than a year to go until the next set of changes of the Minimum Energy Efficiency Standard (MEES) will come into effect.
It is useful to appreciate the distinction between the EPC regulations (introduced by The Energy Performance of Buildings (Certificates and Inspections) (England and Wales) Regulations 2007) and the MEES regulations (introduced by The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015).
The EPC Regulations set out when a valid EPC is required. Fundamentally, this includes where an existing building is to be let or sold but also on the construction of new buildings and where certain refurbishment works are undertaken, unless an exemption applies or the specific transaction does not require an EPC.
The MEES Regulations make it unlawful for a landlord to grant a qualifying tenancy (i.e. not (i) for a term of 6 months or less (unless there is a continued occupation for more than 12 months), (ii) for a term of more than 99 years or, (iii) a licence) of a property that is sub-standard. A property will be substandard where it falls below the prevailing minimum EPC rating. Where there is no valid EPC for the property and an EPC is not required (see above) the property will not be caught by the MEES regulations as there is no way of assessing if the property is substandard.
Current position –
Since 1 April 2018, it has been unlawful for landlords to grant a new lease of a property with an EPC rating below E unless an exemption applies.
From 1 April 2023, it will be unlawful for a landlord to continue to let a property with an EPC rating below E unless an exemption applies.
The future –
The increasing minimum EPC rating is one of the ways in which the Government aims to achieve its carbon reduction targets. The Government has recently published its Energy White Paper which sets out that it intends to make it unlawful to continue to let commercial property with an EPC rating below B by 2030 which it will achieve by way of a phased implementation of compliance windows increasing the minimum EPC rating required by a property.
The first compliance window will commence on 1 April 2025 when landlords of all commercial let buildings within the scope of MEES will have to present a valid EPC by registering it on a new PRS Exemptions and Compliance Database. By 1 April 2027, those landlords must have improved the EPC rating of the building to C or above or have registered an exemption.
The second compliance window will commence on 1 April 2028. Again, landlords will have to present a valid EPC but this time must have improved the EPC rating of the building to B or above or have registered an exemption.
Landlords will have to demonstrate that buildings have reached the highest EPC band that a cost-effective package of measures can deliver.
A Landlord must apply to register an exemption under MEES on the central database which can apply for up to 5 years. These include:
- The Consent Exemption – this will apply where in the preceding 5 years the Landlord has been refused consent required in order for them to undertake improvement works after making reasonable efforts to obtain it. This may apply e.g. where a planning permission is refused or where the superior landlord’s or tenant’s approval is not given.
- Devaluation Exemption – applies where a surveyor confirms that the works required would result in a reduction of more than 5% of the market value of the property.
Temporary Exemptions will afford the Landlord 6 months within which to undertake any improvement works required to prevent the property being substandard. Such exemptions can be sought when:
- A Landlord acquires property already let to a third party;
- There is deemed creation of a new lease by operation of law;
- A Landlord is required to grant a lease by order of the court or pursuant to an agreement for lease;
- Renewal of a protected lease.
Whilst not strictly an exemption, Landlords will be able to continue to let substandard property where they can show that all of the relevant energy efficiency improvements for the property have been undertaken and the property is still substandard. In addition, Landlords are not required to undertake improvement works if the cost of the changes required to meet the minimum MEES rating is not recoverable within a 7 year payback period.
Enforcement and penalties –
The current penalties for letting a property in breach MEES will continue to apply which includes a maximum fine of up to £150,000. The fines of up to £5,000 for minor breaches will continue to apply and the list of breaches will be expanded to include failure to register property on the central database; failing to register a valid EPC by the dates set out in the proposed compliance windows; registering false or misleading information and failing to register an EPC after improvement works have been undertaken to demonstrate compliance. The breach could also be publicised to ‘name and shame’ landlords.
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