Since April 1, 2018, the minimum energy efficiency standards (MEES) have prohibited the grant of new leases or the renewal or extension of existing leases with an energy performance certificate (EPC) rating of either F or G (i.e. that is sub-standard).
An EPC is a home energy survey that shows you how energy efficient a property is and includes a list of recommendations on how to improve energy efficiency. It’s a legal requirement to have an EPC if you’re selling, leasing or renting a property. An EPC will give a property an energy rating from A (very efficient) to G (inefficient) and is valid for 10 years.
From April 1, 2023, this will be extended to prohibit landlords of commercial property continuing to let such properties subject to existing tenancies (whenever the lease was first entered into). Even holding over by a tenant after expiry of the contractual term will count as ‘continuing to let’.
Importantly, MEES does not prohibit the sale of a sub-standard property, but clearly the purchaser may inherit a problem if the property has a sub-standard rating. Where a property is let (or continues to be let) in breach of MEES, the lease remains valid and in force, but the landlord will be in breach of MEES and exposed to potential penalties which can range from £5,000 to £150,000 if the breach continues for more than three months, unless an exemption applies.
What should you be doing?
Check the properties in your portfolio now.
- Is there an EPC for the property? MEES can only apply if there is an EPC.
- Is there an exemption – are you unable to obtain consent for the works, will the seven-year payback test apply, or will any improvements devalue the property by more than 5%.
- Is the lease exempt – MEES does not apply to short leases not exceeding six months, or long leases of 99 years or more.
The energy efficiency regulations are not going away. In fact, the regulations are set to become stricter and by 2027 properties are likely to need a minimum EPC C rating and by 2030 a B rating. When entering into leases now, consideration should be given to potentially stricter MEES ratings during the term of the lease.