Landlords and Tenants: MEES Regulations are now in force

As you will have seen in both the legal and mainstream press, the requirement of a minimum energy efficient standard for premises (known as MEES) was introduced in 2015 as part of a range of measures to meet the UK government’s carbon reduction targets. As a result of this requirement, a landlord cannot let commercial premises if such premises have an energy efficiency rating of either “F” or “G”. The MEES Regulations which contain this requirement have now been brought into force, yet many landlords are still uncertain as to how they will be affected in practice. This brief update reiterates the main issues surrounding MEES and looks at the possible effects on landlords when granting new leases.

Since 1 April 2018, landlords of non-domestic privately rented premises may not grant leases to new or existing tenants if those premises have an EPC rating of band F or G (as shown on a valid Energy Performance Certificate for the premises). This is set out in the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015, and is known as “the prohibition on letting sub-standard property”.  The Regulations aim to tackle the least energy efficient properties in England and Wales and, as the Government’s Guidance Note on the Regulations explains, the energy used for heating and powering non-domestic buildings is responsible for 12% of the UK’s emissions, and minimum standards are essential going forward to tackle energy used and to reduce emissions across the non-domestic built environment.

Do the Regulations apply?

It should also be noted that the minimum standards provisions only apply to:-

  • those premises which are legally required to have an EPC. An EPC is valid for ten years once it is lodged on the EPC register, and a new EPC is not required each time there is a change of tenancy so long as it is not more than ten years old. Once an EPC reaches the ten year point and expires, there is no automatic requirement to produce a new one – this will only be required when the property is next sold, let or modified;
  • leases which are granted for longer than six months, or for less than 99 years.

Note that different rules apply for residential properties (and are not covered here).

Obligation to make Energy Efficiency Improvements

As a result of the above, where a landlord now wishes to grant either a new or existing lease, it must first ensure that energy efficiency improvements are made to raise the EPC rating to an E minimum.

Exemptions

In relation to such improvements, landlords can register certain five year exemptions such as:-

  • where it can show that improvements required to raise the rating will decrease the capital value of the premises by more than 5%;
  • where all improvements which can be made have been made (or none can be made) and the premises remain below an E rating;
  • where third party consent is required (such as a superior landlord, a planning authority, a tenant or lender) and the landlord is unable to obtain such consent despite making reasonable efforts (although note that in the case of a tenant not providing consent, this only applies while such tenant remains the tenant).

Vacant or Occupied Premises?

Where premises are vacant prior to a lease being granted, the position is straightforward. The landlord must ensure energy efficiency improvements are undertaken to raise the rating to a minimum of E before a lease is granted to a new tenant. However, the situation is more complicated where a tenant already occupies the premises, because the Regulations will not interfere with any rights, validity or enforcement of a tenancy under any other act or regulations. As a result, where a tenant already occupies the premises pursuant to a lease protected by the Landlord and Tenant Act 1954 (“the Act”), a landlord may not refuse consent to a lease renewal on the basis that the premises are sub-standard. It should either improve the premises to at least an E rating or register an exemption, if one applies. In addition, the Regulations complicate the position on lease renewals: as there is limited scope for changing lease terms (as a result of previous case law) it may be difficult for a landlord to obtain increased access rights in order to carry out such energy efficiency improvements. That said, should the lease renewal go to Court, it may be that a judge will impose provisions which enable such improvements to be carried out, in the spirit of various environmental legislation. It is difficult to say now as there is no current case law on the point.

Temporary Six Month Exemption in Certain Circumstances

Following the grant of a new lease pursuant to the Act, a landlord may be eligible for a temporary six month exemption from the requirement to improve the premises to an E rating, because the government recognises that it may be inappropriate or unreasonable for a landlord to comply with the Regulations immediately. In this instance, a landlord will have six months from the date of the lease to ensure any required improvements are carried out.

2023 Deadline

Finally, landlords should remember that from 1 April 2023, they must not continue to let non-domestic premises with an EPC rating of F or G to existing tenants unless an exemption applies and has been registered or where all relevant improvements have been made and the EPC remains below an E (and this exception has been registered). This applies even where there has been no tenancy renewal or extension. As a result, landlords are strongly urged to commence energy efficiency improvements on their privately rented stock as soon as possible to ensure that they are not caught by this further legislative requirement in 2023.

The Government Guidance Note can be accessed here:https://www.gov.uk/government/publications/the-private-rented-property-minimum-standard-landlord-guidance-documents

This guide is for general information and interest only and should not be relied upon as providing specific legal advice. If you require any further information about the issues raised in this article please contact the author or call 0207 404 0606 and ask to speak to your usual Goodman Derrick contact.