Commercial Property Landlords – are you MEES compliant?
On 1 April 2023 the next phase of the Minimum Energy Efficiency Standards (MEES) came into force, the effect of which is to prohibit letting a commercial property with an EPC ( energy performance certificate) rating below ‘E’ and now applies to continuing/existing leases as well as new leases.
The aim of MEES Regulations for commercial property is assist the Government in meeting its target to reduce emissions to net zero by 2050, and in a recent article in the Investors Chronicle, it was suggested that fewer than half of FTSE 350 REITS have hit this year’s MEES target and that over 185mn square feet of space could be unlettable unless action is taken. Commercial property landlords will be in breach of MEES duties if they continue to let a commercial property that has an EPC rating below ‘E’ (a “sub-standard property”) unless they have made all possible cost-effective energy efficiency improvements prescribed by the MEES regulations, or one of the exemptions applies.
Cost-effective energy efficiency improvements are works that fall into one of two categories namely works that can be paid for by a Green Deal plan, or secondly, works to improve energy efficiency that will pay for themselves within seven years or less, by taking into account the projected energy cost saving spread over seven years. However the Green Deal scheme is not anticipated to become available for commercial properties.
Exemptions may be claimed to enable landlords to continue to let sub-standard properties if all cost-effective energy efficiency improvements have been carried out at a property or there are no cost-effective works that can be carried out, but the exemption is not automatic and needs to be registered. Even if registered, the exemption only applies for 5 years and is not transferable to a new owner. If a landlord fails to comply, they will run the risk of financial penalties and publication on a public register of non-compliance. The level of financial penalty that may be imposed depends on the duration of non-compliance. If less than 3 months non-compliance, a penalty of up to 10% of rateable value (capped at £50,000) may be applied. If the non-compliance period is over 3 months, a penalty of up to 20% of rateable value (capped at £150,000) may be applied.
With ‘Net Zero’ likely to remain high on any UK Government’s agenda, it seems equally likely that the current minimum standards might be further increased over time and it is important that the impact of MEES is not overlooked.
