MEES comes into force on 1 April 2018. The current minimum energy rating is E, but landlords must be prepared for this standard to be tightened sooner rather than later.
The Minimum Energy Efficiency Standard (MEES) comes into force for both commercial and residential properties on 1 April 2018. From that date, subject to a number of complex provisions contained in the MEES regulations, landowners are not permitted to grant a lease of a property that has an EPC rating of F or G without first carrying out all 'relevant' energy efficiency improvements, or registering an exemption. Any exemption will last no more than five years.
The meaning of 'relevant' differs between commercial and residential properties. For commercial properties (which the regulations term 'non-domestic'), it refers to works that are expected to pay for themselves within seven years. For residential ('domestic') properties, MEES applies only to assured tenancies (including assured shorthold tenancies), regulated tenancies, and certain types of agricultural tenancies, and requires landlords to carry out only works the full cost of which can be obtained from a Green Deal plan, the Energy Company Obligation (ECO), or funding provided by central government, a local authority or a third party (or a combination of these).
Just the end of the beginning?
The MEES regulations contain a requirement for a regular five-yearly review of their effectiveness, the first of which has to take place by April 2021.
However, the government has made it clear that further efforts are needed to make the nation's buildings more energy-efficient. The UK's current target is to reduce its greenhouse gas emissions by at least 80 per cent by the year 2050, relative to 1990 levels. Major changes will need to be made if that target is to be met.
Continuing to let property
The first of these further efforts is contained in the MEES regulations themselves. The start date of 1 April 2018 affects only new lettings, which includes lease renewals. However by 1 April 2023 (in the case of commercial properties), or 1 April 2020 (in the case of residential properties), landlords need to have complied with the MEES requirements simply to continue letting their properties.
This means that, by those dates, all tenanted properties with EPC ratings of F or G to which MEES applies will need to be improved to an EPC rating of E, or an exemption will need to be registered. Many landlords are unlikely to have appreciated the scale of this task and an early review of their portfolios is essential.
Residential landlords to contribute up to £2,500 per property
Secondly, the government has already spotted that with the virtual disappearance of the Green Deal in 2015, few residential landlords would be required to improve their properties. So, it recently issued a consultation proposing that owners of let residential properties should be required to contribute up to £2,500 per property of their own money in order to raise the EPC rating to E. We wrote about this in our article 'Change proposed to how MEES will apply to residential property'. That consultation has closed, and we are still awaiting the government's response. Given that it made the suggestion, it seems likely that the proposal will be implemented, although the figure an owner will be required to contribute is, as yet, unknown.
Aspirations in the Clean Growth Strategy
Additional changes were suggested in the government's Clean Growth Strategy which was issued in October last year. This set out the action the government intends to take to cut emissions, increase efficiency, and help lower the amount consumers and businesses spend on energy across the country. The document contained a number of proposals for improving the energy efficiency of let property, both commercial and residential.
For commercial property, 42 per cent of business buildings' energy use is in the private rented sector, and so, in 2018, the government intends to consult on how best to improve the energy performance of these buildings through tighter minimum energy standards. We will be reporting on the consultation proposals as soon as they are issued.
For residential property, the government intends to 'develop a long term trajectory to improve the energy performance standards of privately rented homes, with the aim of upgrading as many as possible to EPC Band C by 2030 where practical, cost-effective and affordable'. This would be a major change from the current minimum rating of E.
The strategy also states that it could be possible to extend EPCs to other trigger points and the government will issue a call for evidence by spring 2018 seeking views in this area, as well as wider views on how EPCs could be further improved, in light of new sources of data and capabilities.
Green Finance Taskforce.
The Green Finance Taskforce issued a report to government yesterday, 'Accelerating Green Finance'. The Taskforce, composed of leading experts in academia, finance and civil society, was set up by the government to speed up the growth of green finance and the UK's low carbon economy. It is headed by the former Mayor of London, Sir Roger Gifford.
One of the recommendations in the report is that 'a trajectory and minimum energy standard for commercial properties of EPC B by 2035 be adopted'. This is higher even than the C rating suggested for residential property in the Clean Growth Strategy but the report says that this higher target reflects the pro-active response from commercial property owners to the Minimum Energy Efficiency Standard of E, already in place for rented properties.
It is correct that certain larger investors have been pro-active in their response to the introduction of MEES, but suggesting a rise from E to B within just 17 years might seem premature in a report issued before MEES has even come into force.