It is now three years since the Minimum Energy Efficiency Standards or "MEES" came into force. These regulations currently prevent a landlord letting a commercial property with an Energy Performance Certificate (EPC) rating of F or G, unless an exemption applies. From 1 April 2023, even existing leases will become unlawful if the rating is F or G.
It has always been clear that the minimum grade E threshold would be raised. Tough action is seen as essential if the UK is to meet its carbon reduction targets. The government estimates that its target of a minimum grade B by 2030 would increase the proportion of commercial properties which currently fail the MEES test from the current 10% to a whopping 85%.
A consultation was launched last month on how this will be implemented. This will involve a major overhaul of the current rules. The consultation closes on 9 June 2021.
- Phased implementation
An interim milestone of grade C by 2027 is proposed to ensure early action is taken by landlords.
There will be two compliance windows. The first window for grade C will be 2025-2027. A landlord of any let business premises must "present" a valid EPC, i.e. load it onto a planned new database, by 1 April 2025. An existing EPC can be used, if less than ten years old. If the EPC rating is below C, the landlord must then upgrade the building to a C rating by 2027, or register an exemption.
The second window for grade B will be 2028-2030. Landlords must present a valid EPC by 1 April 2028 and then improve the building to grade B, or register an exemption, by 2030.
This does not force landlords to carry out works in two phases. It may be more cost-effective to upgrade directly to a B in the first compliance window by 2027.
- MEES no longer enforced at point of let
The trigger for complying with MEES will no longer be linked to the grant of a lease. All commercial rented properties must achieve a grade C by 2027 and grade B by 2030, regardless of when they are let.
Properties will be required to have a current EPC for the whole time they are let. This will remove the existing rule that exempts a property from complying with energy standards if it has no current EPC.
Moving compliance away from point of let will reduce the current difficulties where a building is let in a shell and core state. If a property is let out close to or after the compliance deadlines, enforcement action cannot be taken until the tenant has occupied for six months. This should give the parties time to work together and ensure a building is compliant, or register an exemption.
- More onus on tenants?
The current regulations put the onus on the landlord, but a tenant's fit out can affect the final EPC rating. The government is therefore considering duties on tenants to share responsibility for MEES compliance, although no further detail is given.
- Listed buildings
The government proposes clarifying the rules on listed buildings. It is proposed that all listed buildings must have an EPC, but may be able to register an exemption from MEES if they are unable to comply with minimum energy efficiency standards. The same will apply to buildings in conservation areas.
- Payback test
The payback test provides an exemption if the cost of the works cannot be recovered in energy savings over a seven-year period. The current requirement to obtain three quotes is seen as onerous, so this will be replaced by a more efficient payback calculator providing standardised costs.
The consultation acknowledges that enforcement needs to be better. A centralised database will give local authorities data for enforcement. In addition, agents would only be permitted to market properties which are already MEES compliant.
- Energy efficiency in actual use
An EPC measures the efficiency of a building's design only. A separate consultation has been issued on certifying energy efficiency of larger buildings (over 1,000m2) in their actual use, rather than their design.
At a time when landlords are collecting a fraction of the rents due to them, the prospect of having to pay out large sums to retrofit properties is unlikely to be welcome. However, if our high streets and offices will be undergoing a transformation over the next few years anyway due to the impact of the pandemic, this may be the ideal time to make our buildings greener.