One of the most significant changes that we have seen for commercial property landlords in the past few years is the changes in MEES (Minimum Energy Efficiency Standards) that are required by law. These standards have been set by the government as part of their commitment to try to reduce our impact on the environment and slow climate change.
The MEES changed on 1st April 2023, and it is essential that commercial landlords comply with these changes.
Here at Boxpod, we want to help both landlords and tenants to ensure that they are aware of the changes in the MEES, and in this article, we will discuss what those changes are and their implications for both commercial landlords and tenants.
MEES Regulation Changes
In 2018, the MEES regulations were changed to mean that commercial property landlords must have had an energy rating of an E or above for their properties if they were to grant a new tenancy or renew an existing tenancy – unless an exemption is obtained. The energy rating is the letter awarded to a property when an EPC (Energy Performance Certificate) inspection is carried out.
The rule changes now in April extend these requirements to include properties with tenants who are already in the commercial property, meaning that any property that is rented out to commercial tenants needs to have an energy efficiency rating of A to E – regardless of when they started their tenancy agreement.
It is important to remember that if you sublet a commercial property, as the subletting ‘landlord’, you would be also responsible for meeting these requirements.
If you are in breach of any of these MEES regulations, you will be liable for a fine that is based on the property’s rateable value, up to an amount of £150,000.
Exemptions
There are a few situations where a landlord can apply for an exemption to these rules. These include:
If the lease is for longer than 99 years.
If the lease agreement is for less than 6 months.
If there is no legal requirement to have an EPC.
If you acquire a building that is already let but does not already reach the minimum requirements (in this case, you have 6 months to make the changes to meet the requirements).
If you have made all of the energy efficiency improvements that are possible but you still have not reached an E rating or above.
If the landlord has not been able to gain consent from the tenant and/or a third party (such as an agent) to come in and make the changes. By law, tenants must consent for landlords or other third parties to enter the property.
If the landlord has confirmation from an independent surveyor that the energy efficiency improvements would reduce the market value of the commercial property by 5% or more.
In the final three exemptions, the exemption will last for 5 years – expiring after this time, so a new exemption will need to be obtained, or the rating of an E or above achieved.
To get an exemption, landlords must apply to the PRS Exemption Register. You should also be aware that the exemption does not stand if the owner of the commercial property landlord changes (in other words, if you acquire a commercial property that needs an exemption, you will need to apply for a new one).
The Impact on Commercial Property Landlords
It is only commercial property landlords who have properties that do not meet the minimum energy rating of an E that are impacted by these rule changes. The bottom line is that you must either have a property meeting this energy efficiency level or have an exemption – regardless of the state of the tenancy agreement with your tenants (unless they are on an agreement of fewer than 6 months or over 99 years).
To find out the property’s energy rating, you should get an EPC inspection from a qualified inspector, who will not only give you the rating but also a list of recommendations on how you can improve the building’s energy efficiency. You can then go on to make these improvements to ensure that you are well above the minimum level.
The Impact on Commercial Property Tenants
The changes in these rules will not necessarily impact tenants in any way – other than potentially getting them a more energy-efficient property. However, if you are a tenant, you might be asked to give consent for your landlord to get into your property and carry out the energy efficiency measures that need to be done.
There is also the possibility that the commercial property’s landlord tries to recover some of the costs of installing the energy efficiency measures. This could be through tenant reinstatement obligations, the service charge, or statutory compliance covenants, for example.
If you are a tenant it is recommended that you check your lease agreement to ensure that you are familiar with your rights and responsibilities with regards to how this might affect you and your lease.
The Future
It is important to remember that these changes to the MEES guidelines are just another step in a much longer process.
The next deadline is 2027. In 2027, the government is proposing to change the minimum energy efficiency rating to a C instead of an E. This is a significantly higher level than at the moment but should have a big impact on the environment.
By 2030, the government is expecting to increase the minimum rating up to a B instead of a C.
It is, therefore, recommended that if you are a landlord, you look to improve your energy efficiency rating as much as possible now, to reduce the need for potential upheaval in the future. The world is only going to become more eco-conscious, and by helping to reduce energy bills you will also be able to make your commercial property more attractive to existing and prospective tenants.
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