What does MEES stand for?
Minimum Energy Efficiency Standards. These are the standards introduced by the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015. The Regulations will improve energy efficiency in both domestic and non-domestic private rented property. There are slightly different rules for domestic and non-domestic property, and in this article we only consider non-domestic property.
The key dates
From 1 April 2018, it will be unlawful for a landlord to grant a new lease, or to renew an existing lease, of commercial premises that have a "substandard" EPC rating of F or G, and from 1 April 2023, MEES will make it unlawful to "continue to let" substandard commercial premises, unless (in either case) the landlord has an exemption.
Short term ASTs and long leases are not caught
Leases granted of commercial premises for less than six months or more than 99 years are exempt (although you can't grant more than two consecutive six month tenancies to the same tenant without triggering MEES). Different rules apply for residential property so, for example, Assured Shorthold Tenancies of whatever length do not fall within this exemption.
The 1954 Act trumps MEES on the grant of a renewal lease
If, after 1 April 2018, the 1954 Act protected tenant of substandard premises wishes to renew its lease, the landlord may not refuse consent to the renewal if the property is "substandard" and so the letting is a breach of MEES. The landlord can register a six month temporary exemption after the renewal lease has been granted, to give the landlord a bit longer to comply with MEES. During this period, the landlord must improve the energy efficiency rating of the building or register one of the five year exemptions.
Exemptions lasting for five years
- where all the relevant energy efficiency improvements works have been made by the landlord (or none can be made) and the property is still sub-standard;
- third party consent is required (e.g. tenant, mortgagee or local planning authority) but cannot be obtained despite the landlord's reasonable efforts; and
- the works would lead to a reduction in market value of 5% or more.
All of them can only be relied upon if registered.
Refurbished shell units where tenant is fitting out and the EPC is F or G
If the EPC is F or G and the unit has been stripped out to shell standard, the EPC assessor won't be able to assess anything that isn't there and so will have to make worst case assessments. The parties could enter into an agreement for lease and the landlord could then register a six month temporary exemption when the lease is granted, after which the tenant's fit out should be complete (if it isn't before the grant of the lease) and the EPC rating should hopefully be high enough to comply with MEES. However, there are practical issues with this:
- First, it is not clear whether the landlord can apply for the six month exemption before the lease has been granted (and if not, it will be in breach on grant).
- Second, the tenant might not fit out within the six month period or might not fit out well enough to achieve a high enough EPC rating. The landlord could make the grant of the lease conditional on the EPC rating being high enough but this could postpone the grant of the lease indefinitely if the tenant doesn't comply.
- A more practical and attractive alternative is for the landlord to make the shell unit sufficiently energy efficient to obtain an E rating before the tenant is allowed in and the lease granted. It could be that minimal work would be required for this, such as including temporary energy efficient LED lighting.
Newly built shell units
In this case the assessor is entitled to assume that a unit will be built and finished, and (crucially) fitted out, according to Part L of the Building Regulations. Because of this the assessor can assume that the energy efficiency requirements under the Building Regulations will be met and can therefore usually issue a "B" rating EPC. On new builds, MEES is therefore unlikely to be an issue.
Lease renewals outside Landlord and Tenant Act 1954
From 1 April 2018, the landlord cannot grant a renewal lease of premises that have a substandard EPC rating. If the tenant is not a protected 1954 Act tenant, the landlord cannot grant the renewal lease without ensuring that the energy rating is improved or registering an exemption. The tenant will have to move out whilst the landlord does this or the landlord can grant a temporary lease of less than six months or tenancy at will that permits the landlord to enter the premises to do the works whilst the tenant is still in occupation. Once the works have improved the rating, the landlord can grant the lease. Alternatively, if the tenant has been in occupation during the five years prior to the renewal and has refused consent to the landlord to enter into the premises to improve the energy efficiency rating (or one of the other five year exemptions applies), the landlord can register a five year exemption, which should cover the grant of the renewal lease.
Third party consent exemptions what steps are required
The MEES Regulations require the landlord to make `reasonable efforts' to obtain third party consent. Reasonable efforts may include attempts on separate occasions and using different means of communication.
In the case of planning consent refusal, evidence of a single application and subsequent refusal is likely to be sufficient evidence.
The Regulations state that any notice seeking consent to make an improvement must be made in writing and may be sent by post. E-mail and other electronic communication will also be acceptable. Where there is a lease or other document in place, the notice must be served in accordance with its terms.
Where the notice is sent to a company, the MEES Regulations state that it may be addressed to the secretary or clerk, although it would be best practice for the party in question to send any correspondence to the most relevant contact at the organisation, including any named individual with whom the landlord typically corresponds.
Where a notice or other communication is sent to a partnership, the Regulations state that it may be addressed to any partner or a person who has control or management of the partnership business but, again, if the lease specifies how notices must be served then its requirements should be followed.
Exemptions do not cover purchasers
If a landlord has registered a temporary five year exemption for a tenanted property and, during that five year period, sells the property, the new landlord cannot benefit from the seller landlord's exemption. As MEES Regulations apply only to new leases or renewals until 2023, this will not be so much of an issue in the next five years as the property must only come up to the required standard on a new letting or renewal. After 2023 however, this will become much more of an issue as a new landlord will have to apply to tenants for consents immediately on purchase of a property in order to continue to legally let the property. The purchaser can register a six month temporary exemption after acquisition, and then has a little time to either carry out the works or register a five year exemption.