Are you ready for 1 April 2023?

The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (SI 2015/962), often referred to as MEES, (“Regulations”) are changing.

After 1 April 2023, a commercial landlord will be in breach of the Regulations if it lets a property under a new or existing lease when the energy performance certificate (“EPC”) rating of the property is below an “E” rating.

Why?

This is part of the Government’s commitment to carbon reduction and drive to improve energy efficiency in buildings. It is estimated that some 40% of carbon in the UK emanates from buildings. Future proposals to increase the minimum rating further (to a “C” rating or even a “B” rating) are under consultation and likely to follow.

Who?

The Regulations will apply to all new and existing leases with a term of greater than six months and less than 99 years.

Landlords have an obligation to comply with the Regulations. Whilst a breach of the Regulations does not affect the validity of a lease, an occupier will not be able to sub-let or continue to sub-let unless the EPC rating is at least an “E” rating (or it has claimed an exemption).

Action

Landlords are advised to check the current EPC ratings of their properties and commission an EPC certificate where there is not a valid one in place.

Where the rating is below “E” then works may need to be undertaken to increase the energy performance of the property. Various exemptions are available, see below.

Landlords should be aware they do not have an automatic right to enter the property to conduct improvement works and may not be able to recover the cost of such works from the tenant. It will be necessary to review the terms of each lease to advise on the position.

Exemptions

There are some exemptions to the Regulations:

• commercial properties that do not require an EPC are outside of the scope of the Regulations
• if the property comes within one of the legitimate reasons permitting a landlord to let a commercial property with a rating below an E. These include (but are not limited to):
  • consent exemption – where a tenant refuses to consent to access the Property to do the works
  • devaluation exemption – where an independent surveyor has reported that making the improvements would decrease the value of the property by more than 5%
  • seven-year payback – if the landlord can show that the expected value of savings on energy bills over seven years is less than costs of the works exemption.

Exemptions need to be registered on a digital PRS Exemptions Register and are time limited.

Penalties

Landlords may face a fine of up to 20% of the rateable value of a property (capped at £150,000) for failing to comply with the Regulations. There is also the concern of adverse publicity and reputational damage.

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