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Commercial landlord? The Minimum Energy Efficiency Standard (MEES)

As part of the drive to carbon net zero, minimum energy efficiency standards for rented commercial properties are changing.

MEES Energy rating chart next to illustration of commercial property.

As part of the drive to carbon net zero, minimum energy efficiency standards (MEES) for rented commercial properties are changing in April 2023 (and potentially changing again, perhaps as early as 2027). The future is rather uncertain but if you are a commercial landlord, then this may be the time to get those walls insulated and windows double glazed!

What are the minimum energy efficiency standards for letting commercial property?

The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015  – the “MEES Regulations” – require a minimum energy efficiency standard (MEES) to be met before commercial property can be let.

Since 2012, a landlord has been required to obtain an energy performance certificate (EPC) before letting a commercial property and to provide the EPC to a potential tenant. Since 2018, under the MEES Regulations, the EPC rating must be a minimum of an “E” rating for a new lease to be legally granted. A property with an EPC rating of “F” or below is known as a “sub-standard” property.

What is changing?

From 1 April 2023, it will become illegal for a landlord to continue to let a sub-standard commercial property (subject to exclusions for some types of buildings and also very long and very short 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; or
  • The landlord can claim a legitimate reason not to do so, and this has been validly registered on the Private Rented Sector (PRS) Exemptions Register

The government has been consulting on further changes to minimum energy efficiency requirements and is “analysing feedback” – but what we do know is that a minimum of an EPC B rating by 2030 has been suggested, with potential for an interim minimum of a C rating by 2027.

What are the “Legitimate Reasons” for not improving the energy efficiency of a sub-standard commercial property?

  • Seven-year pay back exemption

This applies if a landlord can show that the cost of purchasing and installing recommended improvements does not meet a seven-year payback test. Measures will fail the seven-year payback test where the expected value of savings on energy bills that a measure (or package of measures) is expected to achieve over a period of seven years, are less than the cost of repaying it. The exemption will last five years; after this time, it will expire and the landlord must try again to improve the property’s EPC rating to meet the minimum level of energy efficiency. If this cannot be achieved, a further exemption may be registered.

  • All improvements made exemption

This applies where a landlord has made all the ‘relevant energy efficiency improvements’ that can be made (or there are none that can be made), and the property remains sub-standard. There are numerous examples of “relevant” energy efficiency improvements which need to be considered. The exemption will last five years; after this time, it will expire and the landlord must try again to improve the property’s EPC rating to meet the minimum level of energy efficiency. If this cannot be achieved then a further exemption may be registered.

  • Wall insulation exemption

The wall insulation exemption acknowledges that certain wall insulation systems may not be suitable in certain situations, even where they have been recommended for a property. A landlord must provide expert advice to be able to rely on this exemption. The exemption will last five years; after this time, it will expire and the landlord must try again to improve the property’s EPC rating to meet the minimum level of energy efficiency. If this cannot be achieved then a further exemption may be registered.

  • Consent exemption

This exemption will apply where energy efficiency improvement works require third party consent (for example from a superior landlord). To rely on this exemption, a landlord must be able to show that consent was required and sought, and the application for consent was refused. The exemption will generally last five years (subject to exceptions); after this time, it will expire and the landlord must try again to improve the property’s EPC rating to meet the minimum level of energy efficiency. If this cannot be achieved then a further exemption may be registered.

  • Devaluation exemption

A devaluation exemption applies where the landlord has obtained a report from an independent surveyor who is on the Royal Institution of Chartered Surveyors (RICS) register of valuers, advising that the installation of specific energy efficiency measures would reduce the market value of the property, or the building it forms part of, by more than five per cent. Once registered, the exemption will generally last five years; after this time, it will expire and the landlord must try again to improve the property’s EPC rating to meet the minimum level of energy efficiency. If this cannot be achieved then a further exemption may be registered.

  • New landlord exemption

If a person has recently or suddenly become a landlord a new landlord exemption may apply, as it would be deemed inappropriate or unreasonable for them to be required to comply with the MEES Regulations immediately. The exemption will last for six months from the date they become the landlord.

Enforcement of the MEES Regulations

Enforcement of the incoming regulations for commercial, privately rented property, will be the responsibility of local weights and measures authorities – the trading standards departments that deliver the local enforcement of most of the UK’s weights and measures legislation. The potential financial penalties for continuing to let a sub-standard commercial property after 1 April 2023:

  • For continuing to let the property for less than three months, the maximum penalty is the greater of (i) £5,000 and (ii) 10% of rateable value of the property at the date of service of the penalty notice, up to a maximum of £50,000.
  • For continuing to let the property for three months or more, the maximum penalty is the greater of (i) £10,000 and (ii) 20% of rateable value of the property at the date of service of the penalty notice, up to a maximum of £150,000.

Commercial property letting is invariably affected by legislative changes, so it’s important to seek the most up-to-date information and advice for your circumstances.

Contact us to see how we can help.

This article was written by John Campbell

Please note the contents contained in this article are for general guidance only and reflection the position at time of posting. Legal advice should be sought before taking action in relation to specific matters.

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