It’s no April Fool! From 1st April it will be unlawful for landlords to continue to let sub-standard commercial property.

From 1 April 2023 it will be unlawful for a landlord to continue to let a commercial property with a sub-standard energy efficiency rating, unless a valid exemption applies.  The Minimum Energy Efficiency Standards (MEES) regulations are part of the Government’s Net Zero drive to meet its carbon reduction targets and was introduced in the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015. Landlords have been unable to grant new leases of sub-standard commercial property since April 2018.

An Energy Performance Certificate (EPC) rates a property on its energy efficiency by giving a rating from “A” to “G” with “A” being the most energy efficient and “G” being the least.  Where an EPC is legally required for a property then not having one is unlawful and subject to non-compliance. The current minimum EPC level for MEES is rating “E”.  EPC ratings “F” and “G” are sub-standard for MEES.

Landlords should be aware that nothing in the MEES regulations interferes with the rights, validity or enforcement of a lease under any other regulations but accepting rent from a tenant of a sub-standard commercial property without a registered exemption after 1 April 2023 will constitute a breach of the MEES regulations. The penalties for breaching the MEES regulations are based on rateable value of the property and can be as high as £150,000 for each breach.

Exemptions

Valid exemptions must be registered on the Private Rented Sector Exemption Register, which is maintained by the local authority and is a publicly available document. If an application to register an exemption is accepted, the exemption usually lasts for 5 years only. The purpose is to give landlords time to allow for a realistic chance that circumstances may have changed enough for improvements to be made in such a way which meets the requirement of MEES regulations.

The exemptions are:

• Consent exemption: The landlord is unable to undertake improvement works because they are prevented by third party restrictions such as the consent of the tenant, superior landlord, lender or the planning authority.
• Devaluation exemption: The improvement works would reduce the market value of the property by 5% or more.
• All improvements made exemption: All the relevant energy efficiency improvements have been made or there are none that can be made and the property remains sub-standard. This allows for the 7-year payback test where the improvement works would exceed the rule that the expected value of savings on energy bills over a 7-year period is less than the cost of carrying out those works.

The Future

It is clear the Government intends to raise the minimum standard for EPC ratings to “C” on 1 April 2027 and “B” on 1 April 2030, but they have not become law yet.

What should landlords do now?

Landlords should review their commercial properties now to identify any that have a sub-standard EPC rating. If there are any, landlords need to:

• Check whether a new EPC should be carried out because property improvements affecting the EPC rating have been done already but are not reflected in the current EPC rating
• Carry out improvement works to raise the energy efficiency rating then obtain a new EPC or
• Register a valid exemption on the PRS Exemptions Register before 1 April 2023

If you would like to know more about how the MEES regulations affect you, please contact the Commercial Property Team at LDJ.