The MEES Knees

- keep your ‘cool’ over the Energy Efficiency Regulations 2015

The government’s tool to reshape the energy efficiency of the UK’s built environment to help reach its net zero emission target by 2050 is the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (SI 2015/962), better known as the MEES Regulations.

What are the MEES Regulations?

The purpose of the MEES Regulations is to improve the energy efficiency of both residential and commercial private rented property. This article will focus solely on the commercial element.

The MEES Regulations contains the following three sections:

• Part 1 covers interpretation provisions and rules relating to notices served.

• Part 2 covers residential tenants who want to make energy efficiency improvements to their property, despite restrictions within their lease.

• Part 3 covers a minimum energy efficiency standard to be met before private rented properties can be let in certain circumstances.

What is the current position?

Currently, a property is classed as substandard where it, or the building of which it forms part, has an EPC rating of F or G. Part 3 of the MEES Regulations prohibits a landlord of sub-standard non-domestic privately rented property from granting a new tenancy (on or after 1 April 2018) or continuing to let the property (on or after 1 April 2023) unless one of the following exemptions apply:

1. the landlord makes sufficient relevant energy efficiency improvements to the property; or

2. the property is exempt from the regulations as the landlord has claimed a legitimate reason (see below) it cannot make the required improvements and such exemption is registered on the Private Rented Sector (PRS) Exemptions Register.

The potential life raft for landlords of substandard properties is the exemptions mentioned above. An exemption must be registered on the Private Rented Sector (PRS) Exemptions Register and might be one or more of the following:

• where a recommended measure is not a “relevant energy efficiency improvement” because the expected value of savings on energy bills that the measure (or package of measures) is expected to achieve over a period of seven years are less than the cost of repaying it;

• where all the “relevant energy efficiency improvements” have been made and the property remains sub-standard;

• there is a special provision for circumstances in which cavity wall insulation, external wall insulation systems, and internal wall insulation systems should not be installed;

• where third party consent is required for the works, has been sought and refused;

• where the landlord has obtained a report from an independent surveyor advising that the installation of specific energy efficiency measures would reduce the market value of the property, or the building it forms part of, by more than 5%; and www.lesteraldridge.com

• where a person may have become a landlord suddenly and as such it would be inappropriate or unreasonable for them to be required to comply with the regulations immediately.

How will the MEES Regulations develop? Under the current rules (and save in respect of the most extreme cases) an EPC E rating is achievable both in terms of time required to carry out the works and financial input on the part of the landlord, but the government has already committed to changing the definition of a sub-standard property from being an EPC E to EPC B by 1 April 2030.

The key point here is that, unsurprisingly, the regulations are becoming more stringent and the requirements on landlords in the coming years is only going to go in one direction in order to reach net zero emissions by 2050 for the UK.

The practical impact is that tenants negotiating new leases are already carving out obligations to improve the property to meet the increased MEES requirements in an effort to future proof their repair liability. Landlords of current leases can legally only include the cost of repairs in their tenants’ service charges and cannot pass on the costs of improving a property. Agents will need to have conversations when agreeing heads of terms so that everyone is on the same page when the lease is drafted.

What are the obligation on Landlords and Tenants?

As of writing, the emphasis is on landlords to meet the MEES Regulations however, the government in 2021 published a further consultation, looking into how to strengthen the regulations and ensure that tenants also have responsibility in ensuring compliance. A key point raised was that tenant fit outs are not currently regulated but can have a significant impact on the final EPC rating and landlords are still liable for the penalties if there is a breach.

The government is therefore considering amending the PRS Regulations to give tenants of non-domestic properties duties regarding compliance and to add consequent duties of cooperation for both landlord and tenant. Tenants should tread carefully when committing to new premises to ensure future liability rests with the right party, and also review the position under their existing lease(s) without delay.

If you would like any assistance or further advice, please do get in touch with James Realff of our Real Estate and Development team by emailing online.enquiries@la-law.com or calling 023 8082 7487.