With 1st April 2023 fast approaching, it is time to get serious about the upcoming changes to the Minimum Energy Efficient Standard (MEES) Regulations.
What is an EPC?
An EPC is an energy performance certificate. The certificate is provided by an assessor and specifies what a property’s energy efficiency rating is. The most efficient rating is an “A” rating, and the least efficient rating is a “G” rating. An EPC is valid for ten years from when it is registered on the EPC Register, and the expiration date is shown on the certificate.
When do you need an EPC?
EPCs are required when a property is:
- rented (this includes an assignment of an existing lease); and
- if alterations are made to a building which may impact its energy efficiency.
The Minimum Energy Efficient Standard (MEES) Regulations
The MEES Regulations currently do not allow leases over commercial properties to be granted if the EPC rating is an F or a G. There are exceptions to this prohibition if an exemption applies or if improvement works are completed.
On 1st April 2023, the prohibition will extend to all leases of commercial properties, and landlords will no longer be able to continue to rent properties with an EPC rating of F or G subject to an exemption applying.
It is important to note that the MEES Regulations do not apply to commercial properties with contractual terms of over 99 years or less than six months left on the term, the MEES Regulations do not apply. The regulations also do not apply to properties with no EPC and where no trigger event occurs, which would make an EPC a requirement.
If you purchase a property with an EPC rating below an E and it is subject to existing tenancies, landlords can apply for a temporary exemption which will be available for six months in order for a landlord to make improvements to the property or apply for an exemption.
If an exemption applies, it must be registered on the Private Rented Sector Register and is valid for five years.
The following exemptions may apply:
Exhausted energy efficiency improvements: A landlord can apply for this exemption if it has exhausted all the relevant energy efficiency improvements it can do on the property and the property still falls below the minimum rating.
Permission: This exemption will apply when a landlord has yet to get the relevant consent from a third party whose consent is required for improvements. This may be when a landlord requires its tenant to consent to works being completed. It is important to note that a landlord must use reasonable efforts to get the relevant consent.
Economically inefficient: This exemption will apply if the cost of making the relevant improvements is so expensive that the cost will not be recovered within seven years.
Devaluation: This exemption will apply if a landlord can show that improving the property to the required efficiency rating would cause a devaluation of 5% or more of the property’s market value. The landlord will require evidence from an independent surveyor to confirm that the market value would decrease by more than 5%.
A breach of the MEES Regulations could lead to the following penalties:
- A financial penalty of up to £150,000 for a breach of letting restrictions; or
- A financial penalty of £5,000 for providing false or misleading information or failing to comply with a compliance notice; or
- Public exposure.
Is this just the start?
These upcoming changes are just the beginning; further proposals include raising the minimum EPC rating to a B by 2030, increasing triggers on when an EPC will be required, reducing the validity periods of an EPC and providing inspection powers to local authorities to monitor and check that a property, where required, has a valid EPC or exemption.
With the changes coming around quickly and further proposals planned, a landlord needs to take stock and consider what the changes mean.
This includes but is not limited to:
- Reviewing your current properties/ leases and EPCs.
- Considering if any exemptions will apply and make the relevant application.
- Considering inserting green provisions into new leases.