The future of MEES and EPCs | Property Seminar 2022

Experts from Birketts, Roche, and Price Bailey gathered at the beginning of November 2022 in Norwich City Football Club to host their annual property seminar, diving deeper into the current challenges and opportunities facing the regional, national, and international property market.

Chaired by Price Bailey Tax Director, Steven Butcher, the well-attended session featured insights from Roche Partner, Graham Jones, and Building Surveyor, Paul Kelly, in addition to contributions from Birketts Associate and Senior Associate – Rebecca Bond and Steven Bell. Senior Managers, Charlotte Page and Jon Chambers from Price Bailey also shared current financial insights within the industry.

In the first part of our round-up mini-series, we summarised key activity from the National commercial office market and the Norwich commercial property market. In our second article we summarise Roche Building Surveyor Paul Kelly’s insights regarding Minimum Energy Efficiency Standard (MEES), and its impact on national and regional tenants and landlords.

What is MEES?

In order to meet the UK’s Net Zero by 2050 goals, the Government introduced  Minimum Energy Efficiency Standards (MEES) to improve the energy efficiency of privately and commercially leased properties.

How has climate change impacted MEES?

Climate change is a focal point for many people around the world, and with global temperatures rising along with sea levels, in addition to activists and protestors going to great lengths to raise awareness for environmental changes.

The UK Government have introduced numerous acts and regulations as well as making commitments to help combat climate change including:

• The Climate Change Act 2008, which included the legal commitment on the Government to reduce greenhouse gas emissions by 2050, commonly referred to as Net Zero,
• The Energy Act 2011,
• Energy Performance of Buildings Regulations 2010 (EU Member States were required to transpose the directive by January 2013), which legislated the requirement for Energy Performance Certificates (EPCs) for certain dwellings and non-domestic buildings, and
• The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015, (also known as the MEES Regulations).

What MEES regulations are changing from 2023 for commercial properties?

The intention of the ‘Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015’ was to improve the energy efficiency of the UK’s building stock, introducing a Minimum Energy Efficiency Standard for commercial properties to achieve.

To show compliance with MEES, all commercial buildings require an EPC with a rating of E or higher.  Some premises are excluded from requiring an EPC such as:

• Temporary buildings
• Industrial and agricultural buildings and
• Places of worship

From 1 April 2023, under the MEES regulation, landlords of commercial properties must not let nor continue to let a substandard property unless:

• it has made ‘relevant energy improvements’, or no improvements can be made such that the building remains substandard and the EPC rating is below an E; or
• it has a ‘legitimate reason’ prohibiting it from registering an EPC E or above rating and has registered the reason on the PRS Exemptions Register.

What is a ‘legitimate reason’ to be exempt from improving your energy efficiency in a commercial property?

• All ‘relevant energy improvements’ have been completed but the property still has an EPC rating below E.
• No energy efficiency improvements could be made, and the property remains sub-standard. Perhaps a tenant refused consent for works to be carried out, or a third-party refused to grant consent (e.g. planning permission).
• Proposed improvements would reduce the market value of the property by more than 5%. If this is the case, expert evidence will be required.
• If an individual ‘unexpectedly’ finds themselves in the position of being a landlord. The view is that it would be unreasonable to expect them to comply with regulations immediately.

These exemptions are viewed as temporary exemptions, and therefore have time limits attached to them. It is recommended to seek professional advice relating to these limits.

What if you are a commercial property landlord and do not comply with MEES?

The enforcement of these regulations is carried out by a local Trading Standards Department, and under the regulations these become known as the enforcement authorities.

These local departments can decide how they wish to enforce the regulations, however, under recommended guidance the best course of action is to use Trading Standards Officers or Environmental Health Officers to issue compliance notices and serve financial penalties.

If an individual fails to comply with the recommendations in the compliance notice, then penalties can range from £5,000 to £150,000 for failure to comply with the regulations.

What does the future of MEES look like for non-domestic properties?

In a 2021 consultation paper looking to improve the energy performance of non-domestic properties, it sought to identify the most effective route for properties with a current EPC rating of E to achieve the proposed minimum EPC rating of B by 2030.

The suggestion was to adopt a phased implementation with the level increasing to a band C by 2027, before hitting the B target in 2030.

This consultation has now closed and the outcomes are still unknown. However, the general consensus is that a phased in implementation needs to be adopted.

Currently the Minimum Energy Performance of Buildings Bill is with the Commons, and this bill is for a new act to be known as the Minimum Energy Performance of Buildings Act 2021. It will be a legislative tool requiring all rented non-domestic buildings to be EPC Band B by 2030.

What actions should landlords be taking now?

• Undertake a review of their portfolios to identify substandard properties or properties where an EPC may not be required;
• If you have a property that requires an EPC, then ensure one is carried out;
• Consider if any of the legitimate reasons for exemptions apply to your portfolio, and if so, it is vital they are registered;
• Review the recommendations report which are provided with the EPC to identify any work to be completed in order to bring the building in line with regulation;
• Where works are to be required then it is important to begin early dialogue with tenants or third parties to obtain consent in time for work to be completed before the regulations are updated.

In our third-part of this mini series, we outline key lease updates in relation to MEES and EPCs, in addition to important information regarding overseas entities.

If you have any questions relating to the content outlined in this article, please contact us using the form below and we can connect you with the relevant experts.

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.