Commercial property landlords wishing to let properties with an EPC rating of ‘F’ or ‘G’ – What can such landlords do?

Some landlords have just come across the new MEES Regulations which came in to force in April 2018. They are discovering that as their properties have an EPC rating of ‘F’ or ‘G’, they face a heavy fine if they let property or face tenants unwilling take the premises. Basically the property needs to be improved with the works recommended within the EPC itself.  However, it is worth noting that there are some very limited exemptions to the MEES Regulations, which could be considered, as follows:

(a) There are no relevant or cost effective energy improvements that can be made. The test is that the capital costs of such energy efficiency works are not cost effective within a 7 year period.  This has been dubbed by others as “as the 7-year pay-back test”.

(b) Relevant consents have not been obtained despite reasonable efforts to obtain them.  The test is “reasonable endeavours”.  An example is obtaining third party consent to carry out certain works and such consent is just not available.  What counts as reasonable endeavours in this case?  Apparently a landlord would need to try on a number of occasions by various different ways to obtain such consents.  The third parties concerned could be tenants, mortgagees and statutory bodies (such as local authorities building regulation consents, for example).  Basically this has been called “third-party consent”.

(c) There are devaluing effects to market value of energy efficiency improvement and this exemption applies where improvements would reduce the value of the property by 5% or more.  You will need to provide proper evidence (valuations) to establish this.  The likely scenario is where say, for example, the works would have an impact on the amount of lettable space so that such lettable space becomes 5% (or more) smaller than the previous space. This exemption has been called “property devaluation”.

(d) “Exceptional circumstances” – the circumstances need to be exceptional and this is a temporary 6 month exemption (for example, the period when a person recently becomes a landlord).  You will note that the exemption does not carry over to successor landlords so even if a property has an exemption, it does not benefit any purchaser from the landlord who obtained the exemption.

Any landlord should check the government guidelines on exemptions to MEES Regulations and requirements and these are set out on the relevant government website.  Any exemption needs to be registered. There is a specific PRS exemptions register.  Exemptions are limited to a maximum of 5 years, are personal to a landlord who applies for and obtains the exemption and cease when any particular lease for which an exemption has been sought comes to an end.

These exemptions or exceptions are very limited and in most cases the potential landlord is advised to carry out the works as recommended in the EPC to bring the Property up to an acceptable standard.  The potential landlord should liaise with a surveyor and/or builder to arrange for these works to be carried out and then get a new EPC assessment prior to letting.

Please see an earlier blog on this firm’s website on the new MEES Regulations for leases: