What Landlords Should Know - Minimum Energy Efficiency Standards - Hedges Law Guidance Notes

02/09/2015

Hedges Law 

New regulations for Minimum Energy Efficiency Standards (MEES) came into effect earlier this year meaning that landlords now have greater clarity as to their obligations and the timetable for compliance. Landlords should start planning now to ensure that they don’t fall foul of the new regulations and so that they have time to carry out any necessary works.

What are the MEES requirements?

The regulations have been implemented with the aim of improving energy efficiency in the private rental sector. They apply to all properties which require an EPC and impose a requirement that a property’s energy efficiency rating should not fall below the minimum standard “E” rating.
Where a property has a lower energy efficiency rating the landlord must carry out works to improve energy efficiency and after certain specified dates have passed the landlord will not be able to continue letting the property unless the works are carried out.
Which properties require an EPC?

Most properties that are let now require an EPC but if your property falls outside of the EPC regime the MEES regulations will not apply. The following properties do not require an EPC:
  • those that don’t use energy to condition the indoor climate;
  • some listed buildings;
  • places of worship;
  • temporary buildings (lifespan of two years or less);
  • certain industrial sites, workshops and agricultural buildings with low energy demand;
  • stand-alone buildings with a floor area of less than 50 square meters; and
  • those that are to be demolished.

What are the important dates?

If a property falls below the required “E” rating a landlord may not:
  • Grant or renew an existing tenancy after 1 April 2018;
  • Continue an existing letting of non-domestic property after 1 April 2023.

What should I be doing now?

Landlords should review their portfolios to identify any properties with an EPC rating that is lower than an “E”. The necessary works to improve energy efficiency should then be planned within the deadlines imposed by the regulations.

You should consider:

  • whether your current EPC ratings are correct - check that any assumptions made by the person who produced the EPC are correct (sometimes you will find that there are inaccuracies which could make all the difference to the energy efficiency rating);
  • whether you can take advantage of an exemption to the requirements (see below);
  • whether any existing leases grant you the necessary access rights to carry out the works;
  • how you are going to fund the cost of any works – check if you can recover the cost under the service charge or other cost contribution clauses in existing leases;
  • consulting with your tenants to agree how and when any required works will be carried out;
  • whether you have any anticipated void periods during which the works could be carried out;
  • making additional improvements when carrying out any works where it is cost efficient to do so on the basis that the minimum “E” rating is widely expected to rise to “D” or above in the future; and
  • imposing clauses to deal with MEES works in any leases you are about to grant that will continue beyond 1 April 2020 (domestic properties) or 1 April 2023 (non-domestic properties).
  • Be aware that well advised tenants will be alert to the MEES requirements and will be checking their lease rights to ensure that any disruption from works is minimised and that costs are picked up by the landlord.

Are there any exemptions?

There aren’t many exemptions but some landlords may be able to claim the benefit of one of the following:
  • A necessary third party consent to the required works cannot be obtained or will only be granted subject to unreasonable conditions (it is expected that some landlords and tenants will conspire to agree that the tenant will refuse consent to the landlord carrying out required works in order to claim the benefit of this exemption);
  • There are no “relevant energy efficiency improvements” that can be made or such improvements have been made but the property still falls below the minimum rating – the rules surrounding this
  • exemption are complex and specific advice should be taken but broadly speaking relevant energy efficiency improvements can be taken to mean those determined by the Green Deal “Golden Rule”.
  • An independent surveyor confirms that the cost of the required works would reduce the market value of the property by more than 5%;
  • For non-domestic properties, leases for less than 6 months (unless the tenant has already been in continuous occupation for 12 months or more) and which do not contain a provision to renew or extend the term or leases originally granted for more than 99 years are exempt;
  • A temporary exemption for six months where a landlord is “forced” into a letting. This may apply for example where a landlord is under a contractual obligation to grant a lease, or where a lease is ordered by the court or granted pursuant to operation of law;
  • It the cost of the required works will exceed the expected energy savings. For non-domestic properties this will be calculated over a 7 year period.
  • If a landlord is intending to rely on an exemption not to carry out works it will need to register details on the PRS Exemptions Register and provide supporting evidence where appropriate.
  • (Other than the temporary six month exemption) each exemption will last for a maximum period of five years from the date of registration. After that the landlord must either demonstrate that the relevant exemption still applies to the property (and re-register) or carry out the necessary works.
What happens if I fail to comply with the regulations?

A breach of the regulations will not invalidate the tenancy but there may be financial penalties. The current maximum fine levels are as follows:

Non-domestic property: The higher of £10,000 and 20% of the property’s rateable value capped at £150,000.
Details of any breaches may also be published on the PRS Exemptions Register in an attempt to name and shame landlords who fail to comply.

Where can I get further advice?

If you would like to discuss how the MEES regulations will affect you as landlord or tenant contact Hedges Law Head of Property, Vicky Hernandez, would be happy to speak to you on a no-obligation basis. Vicky can be contacted on 01865 594 276 or by email vicky.hernandez@hedgeslaw.co.uk 

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