The Minimum Energy Efficiency Standard (MEES) for both residential and commercial properties in England and Wales comes into force on 1 April 2018. This is less than two years away and so investors need to start to take action now.
What MEES requires landlords to do
MEES contains two separate requirements:
- From 1 April 2018: landlords will not be permitted to grant a lease of a property with an EPC rating below E unless they have carried out all possible cost-effective energy efficiency improvement works, or an exemption applies.
- From 1 April 2020: (in the case of residential properties) or 1 April 2023 (in the case of commercial properties), landlords will not be permitted to continue to let property with an EPC rating below E on an existing lease unless they have carried out all possible cost-effective energy efficiency improvement works, or an exemption applies.
The remainder of this article relates to commercial properties only.
For commercial properties, cost-effective energy efficiency improvement works fall into two categories:
- works that can be wholly paid for by a Green Deal plan. The Green Deal is a financing mechanism designed to enable landlords to pay for energy efficiency improvements and to pass the cost of repayment to their tenants. It is not currently available for commercial properties.
- works to improve energy efficiency that will pay for themselves within seven years or less. The test is whether the cost of the works will be less than the projected energy cost saving calculated according to a formula in the MEES regulations.
It is only necessary to carry out sufficient works to bring the property up to an EPC rating of E, although owners are of course permitted to do more.
Where there are no cost-effective works that can be done, or where all cost-effective works have been done and the property is still below an EPC rating of E, the landowner is allowed to grant a lease. However, the assessment will need to be repeated after five years, as works that are not cost-effective now may have become cost-effective by then, and different types of improvements may then be available.
Various exemptions are also available, although they last for a maximum of five years and do not pass automatically to a future owner.
Some practical implications
Landlords wishing to let buildings with an EPC rating below E will need advice from an energy consultant or a surveyor with suitable specialist expertise in this area to advise on the types of works (if any) that are required to ensure compliance with MEES.
In some cases, merely obtaining a new EPC may be sufficient to bring a property to E or above, as many assessments were carried out poorly in the early days of EPCs, before assessors became familiar with the EPC software.
The minimum E rating may be raised in the future and so landlords with buildings rated F or G may decide that they wish to spend more than the minimum in order to bring those buildings to D or above.