Could new energy efficiency regulations offer savings to the primary care estate and patient care?
On the 1 April 2018, the new Minimum Energy Efficiency Standards (or MEES) regulations were introduced. Some five months down the line from their introduction, much has been written about their potentially very significant cost implications. However, it is worth considering why they were introduced in the first place, and whether they present an opportunity for efficiencies in the primary care estate that could offer savings that could be returned to patient care.
The primary care estate is already under significant pressure
The problems facing the primary care estate are well recognised. In its November 2017 “Saving general practice” report, the BMA highlighted that “Primary care has experienced a decade of stagnating investment in capital assets including premises ….” and that “Restricted investment in GP premises leaves many unable to accommodate the latest innovations in care for patients.” Earlier this year Dr Richard Vautry, GPC England Chair, wrote to all GPs in England on changes to the GP contract for 2018/19. He advised that “£256m will be invested into the contract”, and that “we have also commenced several major areas of work to resolve the many problems we highlighted in “Saving general practice”.
One of these work areas is a fundamental review of GP premises, to be carried out to “provide a better picture of the overall position on primary care estates”. The aim of the review is to look into whether premises are fit for purpose for the future, promoting the recruitment and retention of GP contractors and ensuring GP premises give good value for money. The review was due to commence by the early summer of 2018 and we will report further on the findings of this review in due course.
Inadequate funding of rental and maintenance costs for GP premises has been highlighted as a significant barrier to the delivery of innovations in care for patients. So, at first sight, the introduction of MEES on 1 April and a raft of regulation potentially affecting premises costs is probably the last thing the system needs right now.
Why were MEES regulations introduced?
The minimum energy efficiency standard was introduced in March 2015, but the regulations actually originate from the Energy Act 2011. This act was passed by the coalition government to promote energy efficiency as part of a strategy for the UK to meet its carbon reduction targets for 2020 and 2050 (as set out in the Climate Change Act 2008). It is important to note that the regulations are designed to tackle energy use in older buildings, as building regulations ensure that new buildings meet current energy efficiency standards. This in fact is why they are so important to the primary care estate, with older sub-standard property forming such a large proportion of it.
What are the principles of MEES?
Whilst the MEES regulations are lengthy and come with a lot of guidance, at their heart is the principle that:
- since 1st April 2018, landlords of buildings within the scope of the MEES regulations must not renew existing tenancies or grant new tenancies if the building has less than the minimum energy performance certificate (EPC) rating of E; and
- after 1st April 2023, landlords must not continue to let any buildings which have an EPC rating of less than E;
unless the landlord registers an exemption.
What are the implications for the Primary Care Estate?
With many primary care buildings being let to occupying practices by the NHS, developers, or other third-party landlords, it is easy to see the potential impact of these regulations. It is also important to remember that practices themselves may be landlords caught by the regulations – either as owners of a property being let, or as tenants of a property granting a sublease. In fact, it is landlords who are most affected by the regulations as most of the main obligations in MEES fall on landlords.
There is a very real and obvious threat for landlords here, and that is the financial cost of upgrading non-compliant buildings. There is also the potential risk of loss of income if a property cannot be rented out because it is sub-standard.
What measures should landlord be taking to address MEES?
The important things that landlords can do are:
- understand their existing leases; or, if a new lease is intended, consider how MEES should be dealt with in that lease. There are important issues here around rights of access to do MEES work, who pays for works required to make a property MEES compliant, how lease term and break dates work within the required MEES timetable, and what standard should a property be handed back to;
- check whether the property and/or tenancy falls within the MEES regulations; and
- check whether the EPC rating for the property is correct and, if it is sub-standard, establish whether any exemptions apply.
What about opportunities presented by the MEES regulations?
- the MEES regulations provide a great opportunity for landlords to engage with tenants to put in place lease arrangements fully recognising that the cost of energy improvements goes hand-in-hand with savings on utility bills, with these savings being divided on an equitable basis; and
- with the amount of back-log maintenance, refitting and refurbishment of the primary care estate that is now required, there is an ideal opportunity to explore whether energy efficiency improvements could be carried out as part of that work to avoid future MEES issues or even to increase the potential value of the property.
What are the consequences of not complying with MEES?
Whether there are opportunities from the regulations or not, it is important to note that there are significant civil penalties for non-compliance. The penalty depends upon the rateable value of the property and the length of non-compliance (but can be up to £150,000 for non-domestic property). There is also the adverse publicity that would arise from the public “naming and shaming” of non-compliant landlords.
It is important also to bear in mind that the standard will almost certainly go up. The Government’s stated aim is for the built environment to contribute more towards our carbon reduction targets. Whilst the minimum standard is currently an E rating, how long will it be before that becomes a D (or even higher) rating?
Energy efficiency and the NHS’ sustainable development agenda
Finally, it is worth considering energy efficiency as an integral and vital part of the NHS’ sustainable development agenda. The NHS Sustainable Health and Care Campaign has been established to promote sustainability across the NHS to “improve the health and wellbeing of patients, staff and communities, save money for services and protect the environment and its resources for future generations.”
This campaign recently highlighted the work that is being done by many trusts to make considerable savings by developing low-carbon measures. There are significant gains to be made from this and the primary care estate has its part to play and can reap the potential rewards.
The MEES regulations have unfortunately caused a lot of misconceptions to float around the property world. It is the case that the regulations are lengthy and there is a lot of guidance to accompany them. As a result it can often be tricky to determine whether and how the MEES regulations apply in any given set of circumstances, particularly as there is significant interplay between the MEES regulations and the EPC regulations.
Stewart Gregory is a Partner in Rix & Kay’s Commercial Property Team based in Brighton. With 20 years’ experience of providing property advice to GPs and the healthcare sector, he has a detailed understanding of the complexities and challenges facing the primary care estate.
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