A bit hit and MEES

It is easy to get side-tracked by recent changes in energy policy. In the last few months we have seen a bonfire of the incentives – with consultation on significant changes to the Renewables Obligation and the feed-in tariff scheme. Although the government might be doing some serious pruning of legislation, it would be dangerous to assume that all energy-related legislation is up for change. 

Back in March 2015, new regulations were passed setting out Minimum Energy Efficiency Standards (MEES) for private rented property in England and Wales. You might have missed this in the run up to the elections. The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 covers both commercial and domestic private rented property, and will take effect over the next few years:

• From 1 April 2018, landlords cannot grant a new lease of commercial or domestic property that is ‘sub-standard’ (ie has an Energy Performance Certificate (EPC) rating below ‘E’). This also applies to extensions or renewals of an existing tenancy after that date  
• For domestic private rented properties, it will be unlawful to continue to let a sub-standard property from 1 April 2020. For non-domestic private rented properties, the regulations will apply to existing leases from 1 April 2023  
• There are certain exemptions to the MEES regulations, which will need to be recorded for each property on the Exemptions Register. These include situations where the tenant refuses consent to the works, where third party consent could not be obtained (despite reasonable efforts by the landlord) or where the landlord has an independent surveyor’s report stating that the works would result in a reduction of more than 5% in the market value of the property. Landlords also have an exemption where they can show that the works are not cost-effective.

Although the standards do not bite until 2018, landlords should consider the implications and strategy at an early stage to minimise exposure

The MEES regulations will have implications for landlords, including impact on property value, periods where a building (or part of it) cannot be let, reduction in rental values (not to mention rent free periods whilst works are carried out) and also the costs involved upgrading a building or demonstrating that it falls within an exemption. There are also financial penalties for non-compliance, and the potential for reputational damage through a “name and shame” regime.

Although the standards do not bite until 2018, landlords should consider the implications and strategy at an early stage to minimise exposure. Property sales are also likely to be affected, with well advised purchasers seeking to understand the potential upgrade costs as part of their due diligence process.

Of course, you could just sit tight and hope that the government removes or softens the MEES regulations before 2018. Given the obligations under the Energy Act 2011, that seems unlikely. Take a chance on MEES?  I wouldn’t.

Stephanie Canham is currently away. Chris Paul is a partner in the Projects and Construction team at law firm Trowers & Hamlins