A year after the Minimum Energy Efficiency Standard came into force, Peter Williams and Kate Symons take stock and remind landlords of what is still to come.
The principal provisions of the Minimum Energy Efficiency Standard regulations (MEES) came into force on 1 April 2018. The basic structure of MEES is relatively simple to understand but the devil is in the detail. MEES is UK legislation and will not be affected by Brexit.
MEES applies to both commercial and residential properties (“non-domestic” and “domestic” properties in the language of the MEES regulations). However, for residential properties, MEES applies only where the lease is an assured tenancy, assured shorthold tenancy or regulated tenancy, and it does not apply to low-cost rental accommodation where the landlord is a private registered provider of social housing, low-cost home ownership accommodation or lettings by bodies registered as a social landlord.
Key dates
There are three key dates to remember:
1 April 2018: since this date, before granting a new lease, landlords of properties (commercial or residential) with an energy performance certificate (EPC) rating below E must carry out certain energy efficiency improvement works (explained below) to improve the EPC rating to E or, where appropriate, register an exemption.
1 April 2020 (for residential properties) and 1 April 2023 (for commercial properties): from these dates, MEES will apply to all landlords who “continue to let” properties, which in effect brings properties let before 1 April 2018 within MEES. From those dates, merely owning a let property with an EPC rating below E will mean that the owner needs to comply with the MEES regulations. Such properties are called “sub-standard” in the regulations.
Since the MEES regulations are based on EPC ratings, MEES does not apply to a property where there is no EPC (even if an EPC should have been obtained).
Continuing to let
Now that the 2018 date has passed, landlords urgently need to turn their attention to the “continuing to let” duties, which come into effect in 2020 or 2023 (depending on whether the property is residential or commercial):
1 April 2020 – by this date landlords of sub-standard residential properties need to have either carried out energy efficiency improvements to bring their property up to an E rating, or registered an exemption if those works will cost more than £3,500 (this new requirement takes effect on 1 April 2019, see EG, 1 December 2018, p59).
1 April 2023 – a similar requirement for landlords of sub-standard commercial properties, but they can register an exemption where works will not pay for themselves (in reduced energy costs) within seven years, using the formula in the MEES regulations.
Landlords need to consider each property in their portfolio to ascertain what, if any, works will need to be carried out to bring it to an EPC rating of E or above. If this cannot be done, then the landlord may be able to register an exemption which will normally be valid for five years. The exemption criteria are complex and there is not space to consider them here. See www.gov.uk/government/publications/private-rented-sector-minimum-energy-efficiency-standard-exemptions for the exemption criteria.
Difficult areas
Landlords are encountering problems in the following areas (among others):
Listed buildings: it remains uncertain whether an EPC is needed for the sale or letting of a listed building or a building in a conservation area, and therefore whether MEES applies, see EG, 2 December 2017, p68.) This needs to be clarified, and the most likely source of this clarification may come when a tenant under an assured shorthold tenancy of a listed building claims that a landlord is not entitled to terminate the tenancy on a “no-fault” basis because the tenant was not given an EPC before the start of the tenancy. The landlord will say that no EPC was needed, and the court will have to decide the point. Until then, the only safe approach is to assume that an EPC is required and that MEES applies.
Lease renewals (commercial properties): it is unclear whether an EPC is needed for a lease renewal. Where there is no EPC already, landlords seem to be happy to follow the guidance from DCLG that an EPC is not needed for a lease renewal, meaning that MEES will not apply.
Tenant fit-out (commercial properties): where a new building finished to shell-and-core does not yet have an EPC, landlords are having to delay granting leases until the tenants’ works are finished. Any EPC obtained before the property is fitted out is likely to show a rating of G because of the curious manner in which the EPC software treats a shell-and-core building.
EPCs: these are of varying quality and landlords may be tempted to commission an up-to-date EPC. Care needs to be taken because ratings have been tightened up since 2008 when EPCs were first introduced. A property that was given an E rating a few years ago might have an F rating if a new EPC was obtained tomorrow. An energy assessor can advise further on the practical implications of this.
Penalties and enforcement
The penalty for non-compliance with the MEES regulations for residential properties is a maximum of £5,000. However, it is much higher for commercial properties – up to £150,000 although the regulations give no guidance as to how the penalty should be calculated in any particular case. Keen observers have spotted that if a property has no EPC, MEES does not apply, and that the penalty for not obtaining an EPC could be much lower than the penalty for non-compliance with MEES.
So far, there have been no reported instances of enforcement by local authorities.
Future developments
The minimum energy standard is currently E, but the government is already working on plans to tighten this up. In its Clean Growth Strategy, published in October last year, it proposed raising the minimum rating for residential property to C by 2030, and plans to issue a consultation during 2019. A similar consultation is also expected for commercial properties this year.
Peter Williams is a professional support lawyer in the real estate division of Shoosmiths LLP and Kate Symons is a senior associate at Boodle Hatfield LLP
