Commercial landlords, don’t MEES out!
There surely cannot be anyone in Britain who has not yet heard the term “climate change”. Whether you believe the various claims that have been made around this issue or not, for sure the British government is taking steps to respond to what they regard as the threat posed by an allegedly overheated world. One of these steps is to force the owners of commercial buildings to take practical steps to make their buildings more energy efficient by means of a set of regulatory standards known as ‘MEES’ or Minimum Energy Efficiency Standards. If you own commercial property in England or Wales or you’re thinking of investing in commercial property in England or Wales, then you need to familiarise yourself with MEES.
Energy Performance Certificates
Energy Performance Certificates (EPCs) were introduced in the UK in 2007 as a result of a European Union directive. It was applicable to all properties as part of the Home Information Packs introduced in the same legislation. While the Packs were abandoned in 2010, the EPCs remained in place.
The EPCs are issued following an energy assessment by an accredited energy assessor who visits the property and examines key items such as any cavity wall, floor and loft insulation, the domestic boiler, radiators, heating controls and double glazing, and so on. They then input the observations into a software program which calculates the energy efficiency.
The result is one of those gaily-coloured certificates which contain band ratings from A to G, with A being the most energy efficient and G being the least.
MEES and commercial properties
The MEES were introduced in 2015, and they made it impossible for any landlord to renew any existing or grant any new tenancy to any premises which did not have an energy rating of E or lower from 1st April 2018. This has now been extended. By April 2023, landlords will be banned from continuing to let commercial properties that have failed to achieve an energy rating of E or lower.
Penalties for non-compliance are two-fold. First, the landlord may be fined for a sum of money equivalent to 20% of the rateable value of their building, subject to a maximum of £150,000. Secondly, the landlord’s details may be added to a public register of offenders in a ‘name and shame’ exercise. Some feel that this latter sanction may particularly deter large, institutional landlords who have reputations that they need to protect.
That said, enforcement of the minimum energy efficiency regulations falls to local authorities, many of which are woefully under-resourced. Though the government is expected to toughen up the enforcement regime, it may be patchy for the time being.
Are there any exemptions?
Yes, there are MEES regulations exemptions. First of all, a building will be exempt if the landlord can demonstrate that carrying out the work necessary to achieve the EPC grade will result in a devaluation of the property by 5% or more. Secondly, if landlords can show that they have already carried out the recommended work but that the improvements have failed to achieve the required level of efficiency, they will be exempt. Thirdly, there is something called the ‘7-year payback’ exemption. This means that, if the landlord can prove that the savings on energy bills over 7 years would amount to less money than the cost of the work, then the landlord can claim an exemption.
So, should landlords be taking all this seriously?
Well, yes. The regulations that will come into force next April put about 10% of all commercial properties at risk of non-compliance. However, the government is proposing to increase the EPC requirement to band C by 2027 and then increase it again to band B by 2030. Assuming no further building improvements in the meantime, that would mean a whopping 85% of all commercial buildings would be non-compliant by the end of the decade.
Furthermore, along with the promised tougher regulations, the government is also proposing to create an EPC register. Landlords would then be given a two-year window during which they must submit their building's EPCs ahead of the 2027 and 2030 deadlines.
What can landlords do now in response?
Quite a few things, actually. First, they can start planning and thinking ahead. Any anticipated vacant periods ahead would be the perfect opportunity to upgrade the building and the improvements can be reflected in, perhaps, a higher rental. Energy efficiency is increasingly popular and ‘greener’ spaces with lower energy bills may attract premium rents. Think of it as an opportunity rather than a hindrance.
Secondly, they should explore the technical options for energy efficiency that are coming onto the market all the time. These could be things like energy-efficient boilers or heating systems or modern double-glazed windows which help to keep warmth in during the cold months. There is a cost to these devices and systems but, again, it may prove an excellent investment if it leads to lower energy bills and happier tenants.
Thirdly, consult a professional advisor, such as a solicitor with experience in these fields. While you may be excellent as a landlord, you could find yourself flailing around trying to comply with these increasingly strict regulations and risking heavy fines or reputational damage. A good, knowledgeable advisor can help guide you through this potential ‘green’ minefield as well as advise you on commercial landlord responsibilities in general.
For further information and trusted legal advice regarding commercial property, get in touch with us at Carlsons Solicitors.