The new legal standard comes into effect from April 1, 2018 for commercial properties in England and Wales which do not achieve a minimum Energy Performance Certificate (EPC) of ‘E’. While from 2018 it will apply only to new leases and lease renewals, from April 2023, MEES will broaden to make all leases on property with sub-standard energy efficiency ratings illegal.
With an estimated 18,000 commercial buildings in London alone only qualifying for an EPC rating of F or G, it’s clear that plenty of landlords need to act now to ensure their property isn’t left vacant and unlettable when the new regulations come into force. If you’re not sure what your EPC rating is, you can check it at ndepcregister.com
There are exemptions to the new standards across the building itself and the tenancy agreement so it’s worth familiarising yourself with the legislation ahead of time so you know where you stand:
Landlords must register their exemption on the government PRS Exemptions Register. It’s worth noting that exemptions are valid for five years only.
The financial penalty for letting an F or G rated property after April 2018 starts at a minimum of £5,000 for those in breach of MEES regulations for less than three months. After this timeframe, the penalty increases to 20% of the rateable value, with a minimum penalty of £10,000 and a maximum of £150,000.
This, of course, is alongside the loss of income from your vacant property while it holds an EPC of F or G. You’ll also have to factor in the cost of conducting the required works to meet the energy efficiency standards set.
Financial costs aside, your reputation will also pay the price if you fail to comply, as all infringements of the regulations will be made public.
Making energy efficiency improvements to meet MEES could help to increase the rental and asset value of the property, especially when combined with other renovations.
There’s also the option of entering into a green lease, where an agreement with the tenant is formed as to how the building is occupied, operated and managed in a sustainable way. This could include the cost of energy efficiency improvements being shared for the benefit of both parties.
Once these energy efficiency improvements have been carried out, landlords will be exempt from meeting the minimum ‘E’ ratings for five years.
There’s plenty to consider and it is worth acting sooner rather than later. Landlords can prepare for the change in legislation by understanding whether it applies to their properties, checking their current EPC ratings and reviewing their lease agreements.