With less than a year to go until the first implementation date for the Minimum Energy Efficiency Standards (MEES) there are still many commercial property owners who are either ignorant of these regulations entirely or, if they are aware, are labouring under misapprehensions about how the regulations apply. Although the Department for Business, Energy and Industrial Strategy issued further guidance in February this year, much still remains unclear or uncertain but nonetheless property owners should take a cautious approach to avoid being caught out at a later date.
Some common myths
You cannot let a property which has either an ‘F’ or ‘G’ EPC rating
This is a common misconception but certainly it is less straightforward letting a building with a particularly poor energy efficiency rating. Whilst the underlying intention of MEES is to ensure that landlords do carry out works to improve the energy efficiency of a building wherever possible, it is likely to be the case that, regardless of the works undertaken, certain buildings will simply never be able to achieve a higher efficiency rating. That being the case, MEES does not prevent a letting of a building in those circumstances.
Nonetheless, there is a wider issue about the marketability of under-performing properties and the extent to which a low rating will impact capital and rental values.
I’ve got an ‘E’ rated EPC for my building so I’m alright
Again the answer may be ‘not necessarily’. It is correct that an E rating is the minimum requirement to be able to grant a new tenancy from 1 April 2018 (and the minimum level required to continue a lease of a building post 1 April 2023) but a note of caution needs sounding. Do bear in mind that an EPC rating has a shelf life of ten years at most, so those commissioned in the early days of the EPC regime may now be about to reach expiry. As overall efficiency standards have generally increased over time, there is no guarantee that a renewal EPC (which will almost certainly be required for the grant of either a new lease or the renewal of an existing lease to an occupying tenant) will achieve the same rating and consideration as to whether or not works need carrying out to achieve a higher rating will need expert input where appropriate. Furthermore, given that the underlying purpose of all energy efficiency legislation is to improve standards rather than reduce them over time, there is a real likelihood that the bar could be raised to a higher EPC rating standard in the future.
It doesn’t apply to listed property
This is another popular misconception, not assisted by the fact that neither the regulations nor the government’s recent guidance is terribly clear on the issue. Certainly the mere existence of a listing entry does not automatically exempt the property from the requirement to satisfy MEES (or have an EPC certificate). Rather, it may be that a building owner is able to avail themselves of particular exemptions in relation to the carrying out of energy efficiency works where the works would adversely impact the heritage value of the property or could cause significant damage to it. However, the simple need to obtain Listed Building Consent to any proposed works is not, of itself, a ground not to carry out the works themselves, although the inability to secure that consent would be grounds for exemption!
I am able to claim an exemption, so presumably that’s the end of it?
We have not, so far in this article, really spent much time on the exemptions process, not least as the rules relating to obtaining exemptions are themselves fairly complicated. Nonetheless, the one thing that is certain is that none of the exemptions lasts forever. At best, an exemption (typically that all energy efficiency works have been done and the rating still cannot be improved or the landlord has been unable to obtain a necessary third party consent in order to carry out the works) are limited to a period of five years. After the end of that period (and in some cases before if the tenant was the party objecting and they then vacate the property) the landlord has to reappraise the situation and apply to register a further exemption. Furthermore, the claiming of an exemption is personal to the landlord of the property, not the premises themselves. Accordingly, if the property changes hands, then the incoming landlord has the benefit of being able to claim a temporary exemption (limited to a maximum of six months) to work out what is going on with the property, before they too have to either undertake works or seek to claim an exemption for themselves. By any analysis, this is not a once and for all process and will require regular review which can be a time consuming process where a landlord has a substantial portfolio of properties.
I am a tenant, so it doesn’t affect me
In general terms this is correct, in as much as obligations to comply with MEES fall on landlords rather than tenants. Nevertheless, where a tenant is proposing to sublet premises then it will meet the regulatory definition of a ‘landlord’ and it then needs to consider the impact of MEES on any proposed subletting arrangements. It may be able to avail itself of an exemption (particularly where the tenant’s own landlord is the party which refuses to give consent to energy efficiency works being carried out) but the mere fact that a landlord has excused itself from carrying out works does not automatically pass to a tenant for the reasons set out above. The only context where MEES is not directly applicable is on a sale of a property (or the corresponding assignment of a lease). There is no obligation to meet the requirements of MEES on such a disposal but the prospective buyer and/or assignee will very much be interested in energy efficiency matters as they will inherit the situation from the seller/assignor and it is quite possible that responsibility for MEES compliance will form part of the overall contractual negotiations on a disposal of a property.
In spite of the fact that the regulations themselves have been in existence for some time, even the recent guidance has done little to clarify a number of practical questions for property owners and occupiers. Unfortunately, we expect this to be an area of law which will be a ‘watch this space’. So far as anyone can be certain about anything, the one thing that we may be able to confidently predict is that these regulations will be unaffected by the Brexit negotiations. Although the underlying regulatory framework relates to European regulations, the MEES regulations are incorporated directly into UK law, and given sensitivities around environmental issues generally, it seems unlikely that any government will hold much enthusiasm for dismantling regulations which have impact beyond our membership of the single market.