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01 September 2020

A Review of MEES

Introduction

Minimum Energy Efficiency Standards (MEES) were introduced by The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (the Regulations), establishing the minimum level of energy efficiency for new and existing tenancies in the private rental sector. The backdrop being the Government’s aim to meet carbon reduction targets and the built environment having been identified as a major contributor to greenhouse gas emissions.

Residential/domestic private rented property

Since 1 April 2018, it has been unlawful for a landlord to grant a lease of a non-compliant or substandard domestic property that has an EPC rating of F or G. As of 1 April 2020, this was extended so that landlords also cannot continue to let such domestic property.

The Regulations apply to all domestic private rented properties that are:

  • let on the following types of tenancy: assured tenancies (including ASTs and long term tenancies that meet the criteria for an AST), regulated tenancies (as defined in the Rent Act 1977) and domestic agricultural tenancies; and
  • legally required to have an EPC. This will likely be the case if the property has been marketed for sale or let, or modified, in the past 10 years.

Accordingly, all such properties must have a minimum energy performance rating of E.

It is worth noting that leases granted pursuant to the Leasehold Reform, Housing and Urban Development Act 1993 are not assured tenancies and accordingly MEES does not apply to them.

Action

It would be advisable for landlords to undertake a review of all properties to which MEES applies and as regards any such properties with an EPC rating of F or G:

  • Decide on the works required to bring the property up to minimum E rating. The Regulations refer to the concept of ‘relevant energy efficiency improvements’ and this is a measure, or a package of measures, as recommended in the EPC report;
  • Arranging access to carry out those works; and/or
  • Review whether there are any exemptions available.
Exemptions

There are various exemptions that apply to the prohibition on letting a property with an energy efficiency rating below E, all of which apply from the point of registration (save as detailed in respect of the ‘New Landlord’ exemption):

  • All relevant improvements made: a landlord is not required to spend more than £3,500 (including VAT) on energy efficiency improvements. If the property cannot be improved to an E rating for that sum or less, all improvements should be made up to that amount, then an ‘all improvements made’ exemption can be registered.  Exemption lasts 5 years.
  • High cost: if no improvement can be made because the cost of installing even the cheapest recommended measure would exceed £3,500 (including VAT). Exemption lasts 5 years.
  • Wall insulation: if the only relevant improvements are: cavity wall insulation; external wall insulation; or internal wall insulation (for external walls) and written expert advice shows that the measures would negatively impact the fabric or structure of the property (or the building of which it is part). Exemption lasts 5 years.
  • Devaluation: if the landlord has evidence that the installation of energy efficiency measures to the property would reduce the market value of the property (or the building of which it forms part) by more than 5%. Exemption lasts 5 years.
  • Third party consent: if having used best efforts, the landlord cannot obtain necessary third party consent to carry out the relevant improvements, for example, lender, tenant or planning consent (or consent is given but subject to conditions that cannot reasonably be complied with). Exemption last 5 years, or where the issue is lack of tenant consent, then until that tenancy ends or is assigned to a new tenant.
  • New landlord: on suddenly becoming a landlord in certain circumstances detailed in the Regulations, such as the grant of a lease due to a contractual obligation, a temporary exemption of six months can be claimed from the date of becoming landlord. At the end of those six months, the improvements must have been made or another exemption registered.
Penalties

Local authorities are charged with enforcing the regime and if they believe a landlord has failed to fulfil their obligations under the Regulations, they can serve a compliance notice up to 12 months after the suspected breach occurred. If the breach is confirmed, the local authority may issue a financial penalty up to 18 months after the breach and/or publish details of the breach on the PRS Exemptions Register for at least 12 months.

The maximum penalty amounts apply per property and per breach of the Regulations and are set out as follows in the Gov.uk guidance on MEES and domestic private rented property:

  • up to £2,000 and/or publication penalty for renting out a non-compliant property for less than 3 months.
  • up to £4,000 and/or publication penalty for renting out a non-compliant property for 3 months or more.
  • up to £1,000 and/or publication for providing false or misleading information on the PRS Exemptions Register.
  • up to £2,000 and/or publication for failure to comply with a compliance notice.
  • The maximum fine per property is £5,000 in total.

A ‘publication penalty’ means that the enforcing authority will publish details of the breach on a publicly accessible part of the PRS Exemptions Register. The authority can decide how long to leave the information on the Register, but it will be available for view by the public for at least 12 months.

It is open to a landlord to ask the local authority to review its decision if they do not agree with a penalty notice.

Commercial/non domestic private rented property

Similar to domestic property, since 1 April 2018, it has been unlawful to grant a lease of commercial property with an EPC rating below E. From 1 April 2023, the same will apply to all existing leases of non-domestic properties, making it a breach of the Regulations to continue to let a substandard commercial property.

In terms of the commercial properties to which this applies, the official definition is ‘non-domestic private rented property’ situated in England & Wales that is let under a tenancy. 

As to mixed use property, there is no definition in the Regulations, but if the property in question is let under a tenancy which is not a dwelling, it will be classed as non-domestic private rented property.

The Regulations do not extend to:

  • short leases of less than 6 months (but a continuous period of occupation exceeding 12 months would bring the Regulations into play);
  • leases of 99 years or more; and
  • licences

Key questions

What are the consequences of granting a lease of a sub‑standard property?

The lease itself is not affected, but the landlord is at risk of a penalty by granting a lease in breach of the Regulations.

How does it affect listed buildings?

Overall it is not entirely clear:

The Historic England website states “… since January 2013 listed buildings have been exempted from the need to have an EPC”.

EPC Regulation 5 confirms that an EPC not required for “buildings officially protected as part of a designated environment or because of their special architectural or historical merit, in so far as compliance with certain minimum energy performance requirements would unacceptably alter their character or appearance”.

MEES only applies to buildings for which an EPC is required. Accordingly, if EPCs are not required for listed buildings, this would mean MEES will not apply.

For now, the safest approach would be to assume that an EPC is required and that MEES applies.

Future

The key question is the level to which the minimum EPC will be raised.

The Domestic Premises (Energy Performance) Bill (introduced in the House of Lords in January 2020) would make it a legal requirement for the Government to ensure as many domestic properties as possible have a minimum energy performance rating of C by 2035 and to provide a framework for establishing how to achieve that

The Government’s commitment to improving energy efficiency in all types of private rented property is evident and as such the importance to landlords of reflecting now on existing strategies and assessing what changes are required to adapt to the trajectories with a particular view to marketability, rent review impact and lender’s requirements, is clear.


This article was written by Naomi Heathcote. For more information, please contact Naomi on +44 (0)20 7427 6432 or at naomi.heathcote@crsblaw.com.

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