Are you aware of the changes to the MEES Regulations (Minimum Energy Efficiency Standards) from April 2018? These changes will have effect in England and Wales so that it will be unlawful to let buildings which do not achieve a minimum EPC rating of ‘E’. There are different but similar regulations in Scotland but these are not covered here. The rules apply to commercial and residential buildings and some key points are set out below.
EPC Regulations Change: What are the key dates?
1 April 2018
Generally the MEES regulations will apply to the grant of a lease on or after 1 April 2018 therefore no new lettings or lease renewals will be allowed after this date unless the property meets the required standards. This includes both residential and commercial buildings.
1 April 2020
From 1 April 2020 the MEES regulations are extended to cover ALL leases of residential properties including existing leases.
1 April 2023
From 1 April 2023 the MEES regulations are extended to cover ALL leases of commercial properties including existing leases.
From 1 April 2023 thereafter
ALL properties will need to comply.
What properties are excluded from the MEES regulations?
This may exclude certain buildings, e.g. places of worship, some temporary buildings, some listed buildings.
Very short commercial lettings (6 months or less with no right of renewal) or commercial lettings of more than 99 year are also excluded.
If relevant advice should sought and the guidance reviewed carefully.
Are there any other exemptions?
It may be possible to claim a temporary exemption for 5 years where the minimum ‘E’ rating has not been met but landlords can show either:
- they have implemented all cost-effective improvement measures. What is cost effective or not is determined by a seven year pay back test
- consent to undertake the required works was refused by a third party or an incumbent tenant
- the implementation of the measures would result in the property’s value reducing by 5% or more
Be careful if acquiring property as the above exemption does not generally transfer to the new owner if the property is sold.
There is no need for the exemption to be approved the landlord makes that assessment but the exemptions will need to be logged on a central register created by the Government to be relied up. The register and details of the exemption lodged will be publicly assessable.
Are there any penalties?
Yes, penalties will be raised for non-compliance. These are largely based on the rateable value of the property but start from a minimum of £5,000 up to 20% of the rateable value capped at the maximum of £150,000.
What should landlords do?
If not already carried out review property portfolio and:
- Confirm the EPC rating for all leased properties
- Identify any which currently have an EPC of less than an ‘E’ rating
- Consider obtaining a new EPC assessment
- Obtain an assessment of works required to increase EPC rating
- Obtain cost estimates of works and whether ‘cost efficient’ to carry out
- Check existing lease terms for rights to enter premises
- Assess whether the 5 year exemption may be available
If a property will have an EPC rating of ‘E’ or less and there is no exemption to the works consider whether cost efficient to retain or sell. If you are considering selling one or more properties it is recommended that you take tax advice.
Read HMRC’s guide to MEES changes for non-residential property.
For more information on the impact of EPC Regulations on your property business, contact Lucy Mangan by calling 01784 497 169 or by email on lmangan@menzies.co.uk.
Find out more about Menzies Property sector advisory services.