With only two years left until the Minimum Energy Efficiency Standards (‘MEES’) come into force on 1st April 2018 it’s time for landlords to get their house in order.
The regulations require that where a property (commercial or residential) falls short of the minimum standard (an ‘E’ rating on the EPC) landlords will not be permitted to let the property. In order to be able to let the property landlords will need to carry out improvement works to improve the properties energy efficiency. Where the works are not carried out and landlords let the property in breach of the regulations,heavy fines may be imposed.
From the 1 April 2018 all new leases will be subject to the provisions and as of 1 April 2023 all existing leases will also become subject. It is proposed that there will be a six month grace period where the landlord acquires an interest in the property after the leases are granted and where leases are granted pursuant to contractual obligations.
The regulation will apply to leases over six months and under 99 years. Though the regulations will apply where a six month lease is granted, which would mean a tenant will have been in occupation for over 12 months, it is not possible to avoid the regulations by continually granting a new six month lease.
Enforcement of the regulations take the form of a civil penalty which can be 10% or 20% of the rateable value of the property depending on how long the breach has continued for. Up to 3 months = 10% of the rateable value but the fine will not be less than £5,000 or more than £50,000. Over three months = 20% of the rateable value but not less than £10,000 or more than £150,000.
There are three exemptions to the regulations:
- If the landlord can’t get up-front finance for the improvement works they will be exempt from carrying out improvement works. Both of the following criteria must be met:-
- There is no Green Deal package that will secure the ‘E’ rating required or even after all available Green Deal works have been completed the property still does not meet the minimum standard; and
- The works necessary would not pay for themselves over 7 years.
- If the landlord cannot get third party consent to the works (e.g. the tenants will not provide consent or the local authority) they will not be penalised for not carrying them out.
- Where the works required to improve the EPC rating to an ‘E’ standard would lead to a reduction in value of the property of over 5% the landlord will be exempt.
Exemptions will only last for five years and must be registered on a central database to be valid. After five years landlords will have to reassess if their exemption is still valid and if not, works will need to be carried out.
The liability lies wholly with landlords but tenants should be aware that landlords may try to put the costs onto them through the terms of their leases.
One significant point for landlords to note is that the regulations and the penalty provisions for breach only apply to properties that in fact have an EPC. So whilst you might want to prepare an EPC so that you know if you will need to do any works, you’ll then become subject to the regulations where you might previously have avoided them. However, don’t forget that if you’re required by law to prepare an EPC (e.g. to market a property for sale) then there will be other consequences for non-compliance.
The government intend to review the MEES provisions in 2020 and it is not yet clear if plans are to steadily increase the minimum standard, possibly leaving landlords unsure how far to go in their improvement works.
Whether you are a landlord or tenant our specialist team of commercial property solicitors can guide you through the rules and requirements of renting your property.