Author : Ian Barber
The UK government has ambitious plans to reduce emissions to net zero by 2025. As a first step towards achieving this goal, the property sector will have to comply with a new set of rules on Energy Performance Certificates (EPCs) and Minimum Energy Efficiency Standards (MEES). In 2020 the UK government released a white paper recommending that commercial properties should have an EPC rating of B or higher by 2030.
Last year, a consultation by the government suggested an incremental increase in the minimum EPC standard. The consultation also proposed that commercial properties should carry an EPC ranking of C or higher by 1 April 2027. It must improve to a B or higher by 2030.This is a future draft form of legislation, but there are clear signs that the EPC ratings for commercial buildings will go up.
The Existing MEES Requirements
Under the current MEES regulations, landlords having commercial properties in Wales and England cannot grant new leases except if the property has an EPC rating of an E or higher. This rule does not apply to existing leases. There is a stiff penalty of 10 to 20 percent of the property's value for non-compliance with the MEES requirements. Landlords may have to pay a minimum of 10k and a maximum of 150k for every breach of regulations. The details of their breach may also be put on a public register.
What Are The Exemptions?
1. If third-party consent (a local planning authority) is needed to carry out works but is not granted.
2. If the improvements would cause a devaluation of the property by 5 percent or more.
3. If the improvement would damage the property.
4. The required EPC rating is not achieved despite carrying out all cost-effective improvements.
5. If the property falls within the seven-year rule, which indicates that the improvement costs cannot be recovered (through energy savings) within a seven-year period.
It must be noted that these exemptions are not automatically applied. To gain an exemption Landlords must register their property with the government in advance. The exemptions must be renewed at least every five years.
When Will The New Rules Come Into Force?
The new MEES rules will come into effect from 1 April 2023. From this date, there will be a prohibition on letting a commercial property with an EPC rating below the rating E. The ban will apply to all existing and new leases unless the landlord registers under a valid exemption.
The landlord will be held responsible for non-compliance with the new rules and penalised and named in publications.
What Must Landlords Do?
Landlords of commercial properties must try to make their property compliant with the MEES recommendations. If possible, they must look at future-proofing options to keep up with the long-term changes suggested in the MEES.
Landlords must recheck and review their existing leases to determine if any work can be done to improve the EPC rating. They can also explore the possibility of passing the improvement cost to the tenant.
Landlords of qualifying commercial property falling under existing leases must consult with experts in MEES to get a clear picture of what the future holds for them. They must prepare to get updated EPCs for properties that could be at risk, to establish whether action needs to be taken.
Landlords must make the necessary improvements to comply with the MEES regulations within the stated timeline. If their property is exempted, they must register it on the Private Rented Sector (PRS) Exemptions Register.
What Must Tenants of Business Premises Do?
Tenants must check their commercial lease agreement to find out if the costs of building improvements for increasing EPC ratings must be borne by the landlord. They must also check the landlords rights to enter the property to carry out the work. They must also see if any protective features can be added to minimise disruption during the building improvement work.
It is not certain whether the governments future plans to improve EPC ranking to a B or higher by 2030 will become a reality. However, the government is firm on implementing the MEES regulations from 1 April 2023. Landlords must not waste time and should start reviewing leases in their commercial property portfolios to identify which of their commercial properties are at risk. It will also allow them to determine if the lessees will enable them to implement the improvements.
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