MEES regulations – What are they and how do they impact commercial landlords and tenants?
What are MEES regulations and how do they impact commercial landlords and tenants? Here, Aisha Dambam explains how and when the regulations apply, what the 2023 extension will mean for landlords and tenants, and the exemption criteria for a commercial landlord.
What are the MEES regulations and when do they apply?
The Energy Efficiency (Private Rented Property (“PRS”)) (England and Wales) Regulations 2015 MEES regulation was introduced to improve the worst performing buildings in both the domestic and non-domestic sectors. Currently, subject to some exceptions, it is unlawful for a landlord to lease a property that does not comply with the minimum required energy efficiency standard, which is currently set at an ‘E’ rating on a valid Energy Performance Certificate (EPC). This was prohibited back in April 2018 in relation to the grant of new leases but on 1st April 2023 it will extend to existing leases, new leases, subletting and assignments (except where the letting is less than 6 months or more than 99 years). It is important to note that the MEES regulations will only apply to premises that are required to have an EPC. The rules around which premises are exempt from the requirement to obtain an EPC are complex, but this will ultimately be a judgement for the landlord to make with the benefit of expert advice.
How will the extension of the MEES regulations on 1 April 2023 impact a commercial landlord?
Landlords are likely to be most affected by the MEES regulations as the key obligations falls on them. They will be prohibited from leasing out a commercial building with an EPC rating of ‘E’ or lower. The most obvious threat to a landlord is the financial cost of upgrading their property (for example by replacing the boiler or insulating the property to increase the property’s energy efficiency) and the potential loss of rental income if a property cannot be leased because it has not met the minimum energy standards.
It is important to note that the MEES regulations does not impose a positive obligation on a landlord, which means they are only required to make energy efficiency improvements if they choose to let their property or continue an existing letting. Non-compliance does not invalidate a lease, but the landlord will be exposed to potential penalties of up to £150,000. The exact amount will depend on the extent of the delay and the rate of the lettable value of the property.
What are the exemptions for a commercial landlord?
Having said the above, the MEES regulations contain exemptions which may be relied upon by a landlord to avoid enforcement penalties, which landlords should consider. First, the condition of the exemption must be met. Second, the exemption must be registered and if successful it will last 5 years.
The exemptions include the following:
- Consent: the landlord has been unable to increase the EPC rating because they have not been given consent by a tenant, a superior landlord, a lender or other third parties despite reasonable efforts to obtain this.
- Devaluation: the landlord has received a report from a surveyor stating that making such improvements will result in a reduction of more than 5% in market value of the property.
How will the extension of the MEES regulations on 1 April 2023 impact a commercial tenant?
As for a commercial tenant, subject to the provisions in their lease, they may be asked to leave the property whilst works are being carried out to improve energy efficiency. A landlord may pass the cost of upgrading the property back to the tenant. Having to contribute towards the energy improvements may leave a tenant out of pocket especially if they are not able to carry on their trade. Additionally, certain alterations that a tenant might want to carry out, such as modifications or extensions, may necessitate the need for a new EPC, which the tenant will need to supply at their cost.
How can we help?
Whether you are a landlord or tenant, our Real Estate team can advise you on how appropriate energy efficiency provisions can be in incorporated into your commercial lease to best protect your position.
By Aisha Dambam