COMMERCIAL LETTINGS – MINIMUM ENERGY EFFICIENCY STANDARDS

Since 1st April 2018 it is unlawful for a commercial property to be let unless it has an energy performance rating of level E or above unless a landlord carries out certain works to improve the energy efficiency of the property or certain exemptions apply. On or after 1st April 2023 the effect of this legislation will extend to any continuing letting so that any tenancies which existed before 1st April 2018 that run for a period after 1st April 2023 will be caught by this restriction (“the MEES Regulations”).

At present MEES Regulations do not apply to:

a)   Short term tenancies (no more than 6 months and where the tenant has not already been in occupation for more than 12 months); or
b)   Very long term tenancies (99 years or more); or
c)   Property that is of a type which is not required to have an energy performance certificate (e.g. a property that has no climate control or heating system and a standalone building with a total useful floor area of less than 50 metres squared).

It should not be assumed that the MEES Regulations do not apply to a listed building or a building in a conservation area as government guidance produced has raised a question mark on this point. This guidance suggests that the landlord of such a building needs to take a view as to whether the character or appearance of the building would be unacceptably altered by the works and in the case of any doubt advice should be sought from the local authority’s conservation officer.

Landlords can let a building to which the MEES Regulations apply but which is below the minimum standard if any of the following exemptions apply:

a)   An independent assessor determines that all relevant energy efficiency improvements have been made to the property or that improvements that could be made but have not been made would not pay for themselves through energy savings within seven years; or
b)   Consent to energy efficiency improvement works from third parties (ie. a tenant, a superior landlord or planning authorities) has been refused or has been given with conditions with which the landlord cannot reasonably comply; or
c)   An independent surveyor is of the opinion that the relevant energy efficiency improvements that could be made to the property are likely to reduce the market value of the property by more than 5%.

Any exemption claimed must be registered on the central government PRS Exemptions Register and if accepted is valid for five years only and cannot be transferred to a new landlord.

Where a property is let in breach of the MEES Regulations or where a penalty is imposed, the lease as between the landlord and the tenant remains valid and in force. The MEES Regulations also do not impose a positive obligation on a landlord to carry out energy efficiency improvement works. However, the MEES Regulations do expose a landlord to enforcement action and financial penalties if they fail to comply.

The penalty for renting out a property for less than three months in breach of the MEES Regulations will be equivalent to 10% of the property’s rateable value, with a minimum penalty of £5,000 and a maximum penalty of £50,000. The penalty then rises to 20% of the rateable value, with a minimum penalty of £10,000 and a maximum of £150,000 after 3 months.

For further information or advice in this area please contact a member of our commercial property team.