The Minimum Energy Efficiency Standards ("MEES") were introduced by the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015. In respect of non-domestic property, they prohibited, from 1 April 2018, the grant of a new tenancy or renewal of an existing tenancy if the EPC rating was less than "E" ("sub-standard property").
The next key milestone for non-domestic property is on 1 April 2023, when the prohibition on "continuing to let" sub-standard property comes into effect.
The prohibition will not invalidate an existing lease but a landlord in breach of the MEES regulations may face enforcement action unless: (a) an exemption applies; and (b) the landlord has registered the exemption on the Private Rented Sector ("PRS") Exemptions Register.
Note that long leases with a term of over 99 years and (with some exceptions) leases with a fixed term of less than six months are outside the scope of the regulations. Properties that are not required to have an EPC (e.g. certain listed buildings) likewise are not caught.
Consequences of breach
Where the breach has occurred for less than three months – the landlord may be liable to a fine of 10% of the rateable value of the property. The minimum fine is £5,000 and the maximum is £50,000.
If the breach has been ongoing for more than three months – the landlord may be liable to a fine of 20% of the rateable value of the property. The minimum fine is £10,000 and maximum is £150,000.
In addition to the fines, there may also be a publication penalty. This means that details of the breach are published on the PRS Exemptions Register.
There are exemptions available - but the conditions for the exemption must be satisfied and the landlord must register the relevant exemption for the property on the PRS Exemptions Register.
Given the imminent change on 1 April 2023, when "continuing to let" sub-standard property will fall foul of the MEES regulations, there are likely to be plenty of landlords in the market who should review the list of exemptions carefully and take appropriate action.
"7 Year Payback" Exemption – broadly if the cost of the works required to bring the property up to an "E" rating is greater than the estimated savings on energy bills over a period of seven years.
"All Improvements Made" Exemption – if a landlord has made "all relevant energy efficiency improvements" that can be made or none can be made and the property remains sub-standard. The EPC for the property may contain relevant information when considering this exemption.
"Consent" Exemption – some improvements require planning permission or other third party consent. If the landlord has used reasonable efforts to obtain the third party consent but it has been refused or granted subject to unreasonable conditions, this exemption might be available. Another example is where a landlord does not have a right of entry under the terms of the lease and the tenant has refused to give consent.
"Devaluation" Exemption – if the energy efficiency measures would reduce the market value of the property by more than 5%.
"New Landlord" Exemption – if the landlord has purchased the property subject to an existing tenancy there is a six month temporary exemption available, giving a grace period in which to improve the EPC rating to "E" or establish whether another exemption should apply.
Note that exemptions are personal to the landlord. It is not possible to take over an exemption registered by a previous owner. Depending on the exemption, further evidence and information may need to be uploaded to the PRS Exemptions Register in support. Also, exemptions (other than the six month "New Landlord" exemption) only last for five years. Landlords should diarise the expiration date. The UK Government has published detailed guidance here.
A 2021 UK Government consultation: "Non-domestic Private Rented Sector minimum energy efficiency standards: EPC B implementation" sought views on raising minimum energy efficiency standards for commercial properties to EPC "B" by 2030 by way of an interim target of EPC "C" in 2027. The consultation closed in June 2021 and a UK Government response is still awaited.