The Ultimate Non-Domestic (Commercial) Guide to Minimum Energy Efficiency Standards (MEES)
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The Government’s latest MEEs Commercial Guide for Landlords was published on 23 February 2017.
The Guidance for Landlords is designed to help landlords, freehold Investors, Lenders and Enforcement Authorities prepare for the MEES Regulations.
Link to the latest guide…
The MEES Regulations are part of the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015. This is an element of the Government’s carbon reduction commitment and target of cutting CO2 emissions by at least 40% by 2030.
The Energy Efficiency (Private Rented Sector) (England and Wales) Regulations 2015 make it unlawful from 1st April 2018 to let residential or commercial properties with an Energy Performance Certificate (EPC) rating of ‘F’ or ‘G’ (i.e. the lowest 2 grades of energy efficiency on an Energy Performance Certificate (EPC).
The new Regulations have very significant implications for Property Owners, Investors, Pension Funders, Landlords and Occupiers who wish to assign or sublet, as the marketability of some properties would become impossible unless they were upgraded to meet the minimum standards. Landlords need to take action now to avoid penalties and protect the value of their asset.
From 1 April 2018, the Regulations will apply to new domestic and non-domestic (Commercial) buildings on the granting of:
- A new tenancy to a new tenant, a new tenancy to an existing tenant, i.e. any extension or renewal to an existing tenant
- Followed by all existing privately rented residential properties on 1st April 2020
- Finally, to all existing non-domestic (commercial) leases by 1st April 2023.
Commercial MEES Key points:
- All Commercial building types are in the scope of the Regulations, except for those that do not require an EPC under current Regulations, such as listed buildings or religious buildings.
- MEES does not apply to lettings of 6 months or less, or to lettings of 99 years or more.
- The Regulations apply to sub-lettings and assignments.
- From 1st April 2023, MEES will be extended to cover all leases, including where a lease is already in place.
- The minimum energy efficiency standard is currently set at an EPC rating of ‘E’, although this may change to a ‘D’ rating in the future.
- The EPC must be the current EPC if there is one and this must be no more than 10 years old.
Furthermore, the Government proposes to review MEEs in 2020 which will most likely see the standards tighten. In our opinion the minimum ‘E’ ratings will not be changed to a ‘D’ or above since EPCs are continuously being degraded as and when Building Regulations, software (SBEM) updates and calculation methodologies are updated so that the same unchanged property can easily drop a band or two with each Building Regulation (BR) update (approximately every 4 years), note that this was due in 2018, although there has not been any announcements to date (Q1/2018).
The MEES National PRS Exemptions Register
Where a landlord believes that an ‘F’ or ‘G’ EPC rated property they rent qualifies for an exemption from the Minimum Energy Efficiency Standard, an exemption must be registered on the National PRS Exemptions Register. Landlords who wish to register an exemption for a domestic or non-domestic should e-mail the Department for Business, Energy & Industrial Strategy (BEIS) minimum standards team at PRSregisteraccess@beis.gov.uk
Landlords will be exempt from having to comply with MEES if they can demonstrate one of the following:
- Buildings not required to have an EPC such as places of worship or listed buildings.
- All cost-effective energy efficiency improvements, either within a seven-year payback
- Consent to undertake works is refused by a third party, such as a Local Authority or an incumbent tenant.
- A suitably qualified expert provides written advice that the improvements would result in a devaluation of the property by 5% or more, or that the works would damage the property.
- Leases of less than six months, but subject to a maximum of two consecutive leases with the same tenant.
- Exemptions last for five years and will need to be lodged on a centralised Government register.
- If a property does not have an EPC then the Regulations do not apply.
What is the Impact of MEES on Commercial properties?
MEES will have significant impact because…
- It is estimated that approximately 20% of Commercial buildings are in the ‘F’ and ‘G’ rating brackets.
- It will make some properties illegal to let, unless they are upgraded to meet the minimum standards.
- Valuations of such properties could be affected if their marketability is diminished.
- Rent reviews for properties in this situation could also be affected.
- Implications for dilapidations assessments may also exist.
MEES Enforcement and penalties
Where a local authority suspects that a landlord with a property in scope of the Regulations is not compliant, or has not sufficiently proved an exemption, the local authority can serve a compliance notice on the landlord requesting further information it considers necessary to confirm compliance. If it is not provided, or is provided and is not sufficient to provide compliance, the local authority may proceed to issuing a penalty notice.
MEES Penalty notices
An enforcement authority can (on or after 1st April 2018) serve a ‘penalty notice’ in any case where it is satisfied that there is or has been a breach in the Regulations at any time preceding the 1st April 2018. Where no action is taken, as required by a ‘penalty notice’ within the period specified, the enforcement authority may serve further penalty notices.
MEES Commercial penalty costs
Where the landlord has let a sub-standard property in breach of the Regulations and has been in breach for less than three months at the time the penalty notice is served, the enforcement authority may impose a financial penalty of up to £5,000, or of up to 10% of the rateable value of the property (whichever is greater), subject to a maximum financial penalty of £50,000.
Where the landlord has let a sub-standard property unlawfully and has been in breach for three months or more at the time the penalty notice is served, the enforcement authority may impose a financial penalty of the greater of up to £10,000 or 20% of the rateable value of the property (whichever is greater), up to a maximum of £150,000. The enforcement authority may also impose the publication penalty.
Where the landlord has registered false or misleading information on the PRS Exemptions Register, the enforcement authority may impose a financial penalty of up to £5,000 and may impose the publication penalty.
Where the landlord has failed to comply with a compliance notice, the enforcement authority may impose a financial penalty of up to £5,000 and may impose the publication penalty.
Subject to exceptions a landlord of a non-domestic private rented property must not grant a new tenancy of the property after 1st April 2018 including sub lettings, and must not continue to let the property after 1st April 2023 (i.e. capturing lease renewals for properties without an EPC), where the Energy Performance Certificate (EPC) of the property is below band E.
Other penalties also apply for false or misleading information or compliance issues.
The simplified matrix below reflects the MEEs penalty options.
The simplified matrix below reflects the MEEs penalty options.
|Infringement||Penalty (less than three months in breach)||Penalty (three months or more in breach)|
|Renting out a non-compliant property|
|Providing false or misleading information, or failing to comply with a compliance notice||Up to £5,000 Publication of non-compliance|
It is important to note that the maximum penalty amounts apply per
property, and per breach of the Regulations.
How to Maintain an EPC Rating?
Landlords need to not only protect themselves before a tenant is found but also to ensure that when tenants vacate the property the EPC rating has not changed for the worse. Obviously lease clauses and/or ‘green leases’ can be established to ensure tenants leave the property as they find it but this is not always possible. Adding clauses to leases such as ‘any changes to the building must be made according to Part L of the Building Regulations as a minimum’ would help.
Any changes need to be recorded (copy of manuals, technical data etc) and the building log book updated. A substantial amount of poor EPC ratings are caused by lack of documentation. The alternative is to commission an EPC each time a lease is renewed, extended or expires. The reason for this would be to check that the EPC rating hasn’t changed by the tenants modifications or fitout works. As an example, simply changing or removing lighting in a commercial property will make a significant difference to the EPC rating and include the extra cost either in contracts, memorandum of understanding along with any remedial work if the EPC has changed due to tenants fit-out works may of had a detrimental effect and these costs could have been recovered if this was checked at the end of the lease.
Our Commercial MEES Energy Assessors
We our experienced and accredited energy assessors with extensive Building Construction, Building Services knowledge. With our background as Chartered Quantity Surveying practice, we have significant knowledge in Pre-Contract / Design Stage, Post-Contract (Construction phase), Operational phase, Life Cycle Costing and carryout Dynamic Simulation Modelling Services (DSM).
If you have any queries regarding the above or would like to know more about MEES, please don’t hesitate to contact us.
Historic Commercial information on MEES Legislation:
The Government’s previously published its MEES Guidance for Landlords (PDF) on 23 February 2017. The Guidance for Landlords is designed to help landlords, freehold investors, lenders and enforcement authorities to prepare for the MEES Regulations.
The Regulations were subsequently amended in June 2016 to postpone the dates on which the PRS Exemptions Register will open to domestic and non-domestic landlords. The amending of regulations are available here…
The Regulations were approved by Parliament and made on 26 March 2015. The original version No.1 of the Regulations is available below…