Exemptions to the Minimum Energy Efficiency Standards
On 1 April 2018, the Minimum Energy Efficiency Standards (MEES) came into force. Building on our previous article giving a general overview of MEES, here’s what landlords of commercial properties need to know about the MEES exemptions.
- A landlord of a commercial property with a valid Energy Performance Certificate (EPC) rating of F or worse is prohibited from granting a new tenancy or letting the property as a result of extending or renewing an existing tenancy on or after 1 April 2018 unless;
- the consent exemption applies;
- the devaluation exemption applies;
- the temporary exemption applies; or
- the landlord has made all the relevant energy efficiency improvements to the property yet the property remains below an E.
- To claim an exemption, the landlord must enter relevant details on the PRS Exemptions Register and, in the case of the consent and devaluation exemption only, do so before it seeks to rely on the exemption.
- The exemptions are time limited and can terminate earlier if the landlord disposes of its interest in the property.
- An exemption cannot be passed on from the landlord who registered the exemption to its successor.
- There may be a financial penalty for registering late on the PRS Exemptions Register.
- A landlord only needs to register one exemption for an individual property.
- There is no fee for entering information on the PRS Exemptions Register.
- There are four exemptions.
- A landlord can claim the consent exemption if within the last five years it has been unable to increase the EPC rating for the property to E or better because:
- a tenant has not given consent (where required) for improvements to be made;
- a third party such as a lender or a superior landlord has not given consent (where required) for improvements to be made despite reasonable efforts by the landlord; or
- the third party has granted consent subject to a condition that cannot be reasonably complied with.
- The landlord must carry out the improvements that do not require consent.
- The consent exemption could last up to five years from registration, but would terminate earlier if the tenant who refused consent ceases to be the tenant or the superior landlord changes.
- A landlord can claim the devaluation exemption if within the last five years it has been unable to increase the EPC rating for the property to E or better because it has obtained an independent RICS surveyor’s report which states the relevant improvements would result in a market value reduction of the property in excess of 5%.
- The devaluation exemption could last up to five years from registration.
- The temporary exemption provides a landlord with a six months grace period to comply with the MEES to give it time to either assess which works can be done and do them, or to register an appropriate longer term exemption.
- The temporary exemption could apply:
a. where a lease is granted as a result of a contractual obligation (for example an agreement for lease which was completed before 1 April 2018); or
b. where a new lease or a renewal lease is ordered by the court.
- The temporary exemption could last up to six months from the date the person became the new landlord.
Exemption where all the relevant energy efficiency improvements have been made and yet the property remains below an E
- There is no prohibition on letting if the landlord has made all the relevant energy efficiency improvements to the property that can be made and yet the property remains below an E.
- A relevant energy efficiency improvement must:
- be of a specified type, such as upgrading heating systems more than 15 years old;
- improve efficiency in the use of energy in the property;
- be identified as a recommended improvement for that property in a recommendation report or a surveyor’s report; and
- satisfy the 7 year payback test, which compares the cost of buying and installing the improvement against the resulting savings made on energy bills over 7 years following completion of the works.
- The exemption could last up to five years from registration.
- Where the repayment cost is more than the value of savings, the energy efficiency improvement will not count as a relevant energy efficiency improvement and the landlord has a legitimate reason not to carry it out.
If you are a landlord who is considering letting a commercial property and you are not sure on your Minimum Energy Efficiency Standards obligations, then contact Ed Barnes, Commercial Property Solicitor at Rix & Kay.