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Commercial Property and the Minimum Energy Efficiency Standards (MEES)

18/05/2018

At a glance

The Minimum Energy Efficiency Standards (MEES) came into force in England and Wales on 1 April 2018. Its intention is to encourage landlords to improve the energy efficiency of domestic and non-domestic (i.e. commercial) privately rented property.

From 1 April 2018, it is unlawful for a landlord to grant a new tenancy or extend or renew an existing tenancy of a relevant property that has an EPC rating of F or G, unless one of the full or temporary exemptions set out in the MEES apply.

From 1 April 2023, it is unlawful for a landlord to continue to let a relevant commercial property with an EPC rating of F and G unless one of the full or temporary exemptions set out in the MEES apply.

Exemptions are personal to the landlord. If the landlord sells the property, the new owner must apply for its own exemption.

What are the penalties for non-compliance?

The Local Authorities, who are tasked with enforcing MEES regulations, can impose civil penalties up to 20% of the ratable value of the property, capped at £150,000.

Tenants are not liable for penalties and the lease will remain valid and in force.

What does this mean for landlords?

The obligation to comply with MEES regulations falls on the landlord and is not passed onto a tenant via a general obligation in a lease to comply with statute. However, it is not clear whether the landlord or tenant is responsible for bearing the cost of any necessary energy efficiency improvements.

Costs recovery from tenants?

Whether a landlord can recover any costs of energy improvements from the tenant will depend on the lease provisions. If the tenant has demised the entire property, it is unlikely that the cost of any energy improvements can be recovered from the tenant. If the tenant has demised part of a building, it may be possible to recover the cost of any energy improvements via the service charge but this will depend on the specific service charge provisions in each lease.

Impact on drafting

Since the introduction of MEES was mooted there has been discussion as to whether leases should be updated to include specific provisions in respect of MEES. We have not seen landlords include specific wording to deal with MEES and have not advised landlord clients to include this; a specific provision could be superseded if legislation changes or tenants may challenge express provisions on the basis that energy improvement works are items of capital expenditure that landlords should pay.

We do recommend ensuring that included in the lease is provision that:

  • any alterations carried out by a tenant will not have a negative impact upon the EPC rating for the property; and
  • the tenant will not commission an EPC without the consent of the landlord. An EPC will invalidate any previous EPC. If the new EPC has a lower rating than the previous this could require the landlord to carry out works.

In any event we would recommend that, if landlords have not done so already, they audit their portfolios to ascertain which properties are (or may be at risk of becoming) sub-standard and which may benefit from exemptions and apply for these exemptions.

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