The new Minimum Energy Efficiency Standards for Leases

Early last year I mentioned the Minimum Energy Efficiency Standards ("MEES") Regulations which are now in force as of 1 April 2018.  Under these new Regulations, subject to a few exceptions, private sector landlords of properties will not be able to grant leases to new or existing tenants with an Energy Performance Certificate (“EPC”) band rating of F or G. 

The reason for commenting again is that there are still landlords out there who are unaware of the change and there are others who may be aware of it but are not sure how to address the issue.

As mentioned previously, it is important to comply with the Regulations.  As a landlord, if you are unable to let your property as the EPC is too low, it may take months to rectify the position by making alterations or additions to the property to improve the EPC band rating to an E or above.  This could lead to lost income and the investment value of the freehold property would be detrimentally affected until the requisite works had been concluded and an appropriate EPC banding of E or above, obtained.  Some basic considerations are as follows:

1) What is an EPC?

An EPC is issued following an inspection by a qualified energy assessor who takes measurements, photos and notes on a visit to the relevant property.  The energy assessor then prepares a report, an EPC, which sets out the energy rating for a building based on the performance of its fabric and services (e.g., heating, lighting and ventilation).  As part of the EPC there is a rating of A – G (where G is least efficient) and there are recommendations on how the energy performance of the building can be improved.

2) If there is no requirement for an EPC in the first place, then there is no need to comply with the MEES Regulations.

EPCs are needed when buildings are constructed, sold or rented out.  There are only a few exceptions (which you would need to check in each particular circumstance) where an EPC is not required on a sale or letting.

You must review the government website on EPCs.  An example of an exemption is where the building itself may not qualify as a “building” e.g., an open sided shelter or the building may be a small standalone building of less than 50m² total useful floor area and there are other examples – see the government website for other examples.

One frequent over-simplification is to believe that Listed buildings are exempt.  They are not automatically exempt.  It is prudent to consider having an EPC carried out and then if improvements to the property to bring the property up to an EPC banding of E or above are required, then it has to be established that compliance with such EPC requirements would “unacceptably alter” the character and appearance of the building (i.e., affect the “Listed” status).  If so, then exemption may be possible from the requirement to have an EPC.  Guidance is issued by the Department of Communities and Local Government (DCLG) on EPC requirements.  See the government website.

3) So, if an EPC is needed (after having checked the limited exceptions to the same) under the MEES Regulations is it unlawful for a landlord to grant a new lease, and also extend or renew an existing lease of a building with an F or G rating?

There are exemptions to the MEES Regulations which are personal to each landlord (i.e., if a property changes hands they do not pass on).  It is important to review the government website for the private rented property minimum standard.  Broadly the exemptions to MEES Regulations requirements are summarised as follows but you must check the specific government guidelines on these:

a) There are no relevant or cost effective energy improvements which can be made.
b) Relevant consents have not been obtained despite reasonable efforts to obtain them.
c) There are devaluing effects to market value of energy efficiency improvement.
d) Exceptional circumstances.

For non-domestic property the MEES Regulations apply from 1 April 2018 for new lettings.  From 1 April 2023 the MEES Regulations apply to a landlord who continues to let a property within an F or G rating (i.e., it does not have to be a new letting but any existing or new letting).

From 1 April 2018, for any new letting of non-domestic property the landlord needs to either:

(A) comply (i.e., have an EPC rating for the property of E or above; or
(B) register an exemption to the MEES Regulations.

Residential property has similar requirements under the MEES Regulations.  New, renewed or extended leases must not be granted from 1 April 2018 if the EPC banding is F or G.

Also, from 1 April 2020 (as distinct from 1 April 2023 for non-domestic property) a landlord must not continue to let any residential property with an F or G rating.  So the latter date is 3 years earlier for residential let property.

4) What if I ignore the MEES Regulations on letting?

Currently, there is about a £4,000 penalty for residential breach with a maximum of about £150,000 for non-domestic property breach.  These figures are specific to the property concerned but the penalty is payment for each breach i.e., if there are two leases there are two separate penalties.  Also, there is the possibility of publication of names of transgressors on a public register.

5) Summary of decisions that need to be made by a landlord:

  1. Is an EPC required?  If not (i.e., it is within the exemptions for the requirement for an EPC), the landlord may let the property.
  2. If an EPC is required, is the EPC energy efficiency rating F or G?  If not, and the EPC energy rating is E or above, the landlord may let the property.
  3. If the EPC has a rating of F or G, do the exemptions to the MEES Regulations apply?  If so, then the landlord must register the exemption and can let the property.
  4. If the rating is F or G and the exemptions to the MEES Regulations do not apply, the landlord cannot let the property.

Similar considerations apply to both non-domestic property and residential lettings.

See www.uk/government/publication/the-private-rented-property-minimum-standard-landlord-guidance-documents

Also, please see all other government guidance on both EPC requirements and MEES Regulations for more detailed information of which the above is just a summary and is not to be taken as detailed legal advice.

DISCLAIMER

Whilst every care has been taken to ensure the accuracy of this blog at the time of preparation, it is not intended to be a substitute for legal advice. Specialist legal advice should always be sought before taking, or refraining from taking, any action.


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