Editorial – One Year On. Know your Energy Performance MEES EPC Rules – What Landlords (and Tenants) need to know.
By Steven Collins MRICS 30th May 2019
By now we probably all know that energy performance is becoming increasingly important in an environmental context. Be aware however, that government is driving change. Since 1st April 2018 the rules around how efficient buildings need to be before they can be Let OR Sold have been tightened. Currently, landlords are not permitted to sell or let out residential or commercial properties in England or Wales that have EPC (Energy Performance Certificates) that are F or G rated EPC – the lowest two grades of energy efficiency.
Now that the change in the rules is one year old we can testify that this change IS having effect and IS preventing or at least delaying lease renewals and sales when EPCs are not Rated E or better.
From April 2018, the Minimum Energy Efficiency Standards (MEES) regulations have been enforced on new leases and existing leases that are being renewed and will have a significant impact on landlords and occupiers who may look to sublet space; some properties could be unmarketable unless upgraded to meet the minimum standards required.
Whose responsibility is it to comply?
Should the EPC rating fall below the minimum E rating, it is the landlord’s responsibility – not the tenant’s – to carry out works to upgrade the property, raise the rating and comply with the regulations. Depending on the extent of work necessary to upgrade the property it is likely to impact on the outgoing tenant’s dilapidations liability.
This should include assessing the EPC rating for all properties in the portfolio and drawing up a plan to improve the energy efficiency of any in the F or G category. It is also worth reviewing the existing EPC to consider whether the EPC rating is correct and review the level of assessment has been completed. It has often been the case that EPC’s have been commissioned at the minimum cost possible. This has resulted in an inappropriate level of assessment being undertaken for the building type which may have resulted in an inaccurate EPC rating.
It is also important to look at the costs and benefits of improving the EPC against the business plan for each property.
Some landlords may judge the risk of being caught out in the event of ignoring these regulations are slight. Some tenants may simply be unaware of these relatively new regulations. However, there are substantial fines for non-compliance, enforced by Councils who have the power to impose civil penalties based on the rateable value of the property, which could be up to a maximum of £150,000 per building.
Where an enforcement authority considers that a landlord may be in breach the requirements, it may serve a compliance notice requiring the landlord to provide evidence to the enforcement authority. If found to be in breach, the landlord may be issued a notice imposing a financial penalty, and a publication of the penalty on a register.
There are certain exemptions to MEES Regulations which will be judged on a case-by-case basis. For example, if the works are more expensive than the value of the property, or if the cost of the works will exceed the expected energy savings calculated over a set timescale, or if there are no “relevant energy efficiency improvements” that can be made or such improvements will not improve the EPC rating, or if upgrading would have a negative impact on a listed building. Landlords should seek professional advice if this applies to them.
So what can we expect next?
Landlords who have their MEES plan in place shouldn’t become complacent and assume work stops there. The built environment has been identified by Government as a major contributor to Greenhouse Gas emissions and therefore poses a threat to the UK meeting its carbon reduction targets for 2020 and 2050.
From 1 April 2020 the requirements will apply to all private rented properties in England and Wales – even where there has been no change in tenancy arrangements and from 1 April 2023 this will also apply for non-domestic properties. Commercial landlords will not be able to continue to let properties that do not meet the energy efficiency standards.
If in doubt seek professional advice on the legislation and the impact it will have on the portfolio. Specialist advice can help landlords to draw up a list of actions to achieve the minimum standards required and assist in project managing any necessary improvement works.