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Minimum Energy Efficiency Obligations – What Landlords and Tenants Need to Know

by Published on

In essence, unless exemptions apply, properties with an energy performance certificate (EPC) rating of less than “E” will require works to improve their energy efficiency to a rating of “E” otherwise fines will be payable by their landlords.

The MEES will be enforced upon the granting of any new lease (including renewal leases) of both commercial and residential properties from 1 April 2018.

What properties are affected?

The MEES will apply to all commercial / non-domestic properties that are required, by legislation, to have an EPC, save for those let for a period of six months or less or let for a period of 99 years or more. The vast majority of commercial property lettings will be impacted.

The MEES will apply to all residential properties let pursuant to assured tenancies, assured shorthold tenancies, Rent Act tenancies and any other tenancies that are specified by legislation at any time.

Landlords of residential properties should note that the Regulations will allow their tenants to request consent to make prescribed energy efficiency improvements to a property from 1 April 2016. From that date, it will be unlawful for those landlords to unreasonably refuse consent unless certain exemptions apply.

Enforcement and penalties for failure to comply

Local authorities will enforce the Regulations via Trading Standards Officers. If a local authority suspects that a property is non-compliant or an exemption has not been sufficiently proved, it may serve a compliance notice on the landlord requesting further information to evidence compliance. Failure to provide the information or sufficient information may result in the local authority issuing a penalty notice.

Penalties vary to reflect the seriousness and the period of any non-compliance..

Failure to comply with the Regulations will result in a financial penalty for landlords and a possible publication penalty.

For breaches of less than three months, the fine will be:

– 10% of rateable value, subject to a minimum of £5000 and a maximum of £50,000, for a commercial property; and

– £2000 for a residential property.

For breaches of more than three months, the fine will be:

– 20% of rateable value, subject to a minimum of £10,000 and a maximum of £150,000, for a commercial property; and

– £4000 for a residential property.

There are limited grounds on which to appeal a penalty notice.

Relevant dates

– 1 April 2016 – residential tenants are able to request a landlord’s consent to carry out prescribed energy efficiency improvements and, unless certain exemptions apply, the landlord must not unreasonably withhold consent;

– 1 April 2018 – it becomes unlawful to grant leases (including new leases and renewals) where the EPC rating of the property in question is less than “E”;

– 1 April 2020 – the MEES will apply to all new and existing residential lettings; and

– 1 April 2023 – the MEES will apply to all new and existing commercial lettings.

Exemptions

The exemptions that will allow landlords to let properties that do not meet the MEES are, in basic terms:

– where there is no Green Deal available for the improvements and the identified improvement measures would not pay for themselves over seven years;

– where the consent of a third party, such as a lender, tenant or superior landlord is required for any energy efficiency improvements and, having used reasonable efforts to obtain that consent, the landlord is unable to do so; or

– an appropriately qualified, independent surveyor has advised, in writing, that the measures will reduce a property’s market value by 5% or more, or that any wall insulation required will damage the property.

Where an exemption applies the landlord may let or continue to let a property below an EPC rating of “E”, but the exemption must be noted on a centralised register. The exemption will only last for five years and new reports and assessments will need to be undertaken and consents (to the extent necessary) re-sought and refused for the exemption to apply for a further five years. Any further application of the exemption must also be noted on the centralised register.

As an owner of a property or portfolio of properties what action should I take now to prepare?

In terms of practical steps, we would advise you to analyse the risk exposure within your portfolio with a view to identifying any properties that may require works to make them compliant. Reviewing existing energy performance certificates and obtaining them for properties in respect of which you do not already have them will assist, as will reviewing the relevant terms of any tenancy documentation. You may wish to obtain legal advice in relation to the latter, and it may be advisable to seek advice from qualified surveyors as to any works that may be required. You may also wish to consider whether any of the exemptions apply.

It is likely that the minimum energy rating will rise in time, so landlords, when undertaking compliance works, may wish to consider ensuring that such works bring their properties into a higher rating, perhaps “C” or “D”. This should mitigate further related costs in the short term.

How can my solicitor assist?

We can advise you in relation to the provisions that, as a landlord or tenant, you need to be aware of or seek the inclusion of on the grant of any new tenancy or renewal. These may include provisions relating to tenants’ alterations, compliance with statutory obligations, repair, and reinstatement obligations and service charge provisions. We can of course also keep you right in relation to the applicability of the legislation and point you in the right direction to turn for further advice.

Where you have concerns about an existing tenancy, we can advise you as to landlords’ rights of entry for the purposes of carrying out compliance works and what, if any, third party consents are required.

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