Landlords – will you be able to let your property from 1st April 2018?

The Minimum Energy Efficiency Standards (MEES) come into effect from 1^st April 2018, and it’s important to understand the ramifications if you’re a current or prospective landlord.

The regulations will make it unlawful for landlords to renew existing tenancies, extend existing tenancies, or grant new tenancies if the property has an Energy Performance Certificate (EPC) rating of ‘F’ or ‘G’ (i.e. the lowest 2 grades of energy efficiency), unless they register an exemption. This applies for both commercial and residential properties.

In order to make the minutia of this change more digestible, we’ve broken down the scope of MEES, the exemptions to the law, and penalties for failing to comply in the following short primer:

Scope

MEES will apply to:

• Multi-let and full repairing and insuring leases
• Sub-lets
• Leases over 6 months and under 99 years in length (including leases of less than 6 months with a right of renewal)
• Grants, renewals or extensions of assured tenancies (including assured shorthold tenancies)
• Statutory periodic tenancies
• Rent Act protected tenancies – by succession or grant of the same or a different property owned by the same landlord
• Grants, renewals or extensions of agricultural occupancies or similar tenancies

MEES will not apply to:

• Buildings which are not required to have an EPC: e.g. industrial sites, workshops, non-residential agricultural buildings with a low energy demand, certain listed buildings, temporary properties and holidays lets
• Buildings where the EPC is over 10 years old or where there is no EPC (a further EPC will only be needed the next time a sale or letting takes place)

Exemptions

Landlords will be exempt from having to comply with MEES if the following apply:

• An independent assessor determines that all relevant energy efficiency improvements have been made to the property or that the improvements would not pay for themselves through energy cost savings within a 7-year time frame
• An independent surveyor determines that the relevant energy efficiency improvements would reduce the market value of the property by more than 5%, or that the works would damage the property
• A tenant, a superior landlord, or planning authorities refuse to give consent; or consent has been given with conditions with which the landlord cannot reasonably comply

Penalties

Residential

Where the breach is for less than three months, the fine is £2,000. Where the breach is for more than three months, the fine is £4,000.

Commercial

Where the breach is for less than three months, the fine will be equivalent to 10% of the rateable value of the property, subject to a minimum penalty of £5,000 and a maximum of £50,000. Where the breach is for more than three months, the fine will be equivalent to 20% of the rateable value of the property subject to a minimum penalty of £10,000 and a maximum of £160,000. 

What should landlords do now?

Landlords need to weigh up the financial cost of upgrading non-compliant buildings with the potential loss of income if a property cannot be rented out. It may also be more difficult to sell the property unless it is upgraded. Landlords may also consider checking the provisions in their existing leases.

Astle Paterson can advise landlords as to whether their properties are within the scope of MEES and review leases to check, for example, whether landlords can recover capital expenditure required for improvements from the tenant.

Contact one of our commercial property specialists directly to learn more.