Department for Business, Energy & Industrial Strategy publishes MEES guidance for commercial property

Minimum Energy Efficiency Standards (MEES) have been on the radar for some time now. Key provisions restricting both domestic and non-domestic landlords ability to let certain "sub-standard" property (currently that is property with an EPC rating of F or G) start coming into force on 01 April 2018. From 01 April 2020 for domestic property and 01 April 2023 for non-domestic property the scope of MEES will extend further to capture existing tenancies and restrict landlords from continuing to let sub-standard property. On 23 February 2017 the Department for Business, Energy & Industrial Strategy (DBEIS) finally published guidance for commercial property caught by the regulations. Some points of note from the guidance are set out below:

• The guidance notes that as the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (the Regulations) only apply to properties which are let under a tenancy, non-domestic properties which are let under other arrangements such as licences or agreements for lease are unlikely to be required to meet the minimum standard. It will remain to be seen whether landlords or tenants would be willing to move away from more formal arrangements in order to avoid being caught by the regulations. If that happens, it may be that the enforcement agency would begin to scrutinise the substance rather than form of a document when it comes to licence arrangements.

• If a tenant has a right to renew its lease under the Landlord and Tenant Act 1954, the guidance makes it clear that the landlord cannot rely on the fact that the property is sub-standard as grounds to refuse to grant a renewal tenancy. The guidance simply notes that where after 01 April 2018 the tenancy is being "renewed or extended, or a new tenancy is being granted…the landlord should either improve the property to an E, or register an exemption, should one apply." A landlord should be able to register for a temporary six month exemption where it has granted a new lease pursuant to the 1954 Act. However, this suggests that landlords may find themselves in a tricky situation when it comes to statutory lease renewals if they do not have the funds to pay for the required improvements and cannot rely on one of the statutory exemptions, beyond the six month temporary exemption. It also notes that a tenant cannot use a failure by the landlord to comply with the Regulations as a reason to terminate its lease prematurely.

• On a subletting, the tenant who is looking to sublet and become a landlord will be responsible for ensuring compliance. If works are required then these may need the consent of the superior landlord. The superior landlord’s consent will be a third party consent for which an exemption may be available of consent cannot be obtained for any improvement works needed. However, the guidance notes that the continuing obligation is on all landlords after 2023 to ensure minimum standards are met, so landlords may wish to consider the position carefully if their tenants propose to grant subleases which will continue beyond the 2023 deadline.

• An EPC is valid for ten years, once it has expired there is no automatic obligation to produce a new one unless a new trigger point occurs. An example given in the guidance, which is helpful to landlords, refers to a sub-standard rated property let on a 20 year lease (by implication, before April 2018) where the term extends beyond 2023, where the EPC was obtained in 2012 and will have expired by the time of the 2023 deadline. In this situation, the mere occurrence of the 2023 deadline will not put the landlord in breach of the Regulations as a trigger point to obtain a new EPC will not have arisen.

• It seeks to clear up what the guidance refers to as a "common misunderstanding" in relation to listed buildings making it clear that listed buildings may require an EPC where the character or appearance of the building would not be altered by compliance with energy performance requirements. It notes advice should sought if parties are still unsure whether an EPC is needed.

• The guidance makes it clear that references in the Regulations to Green Deal finance for non-domestic properties are not relevant, given no commercial Green Deal is or is likely to become available.

• Although the exemptions register is available from April 2017 there is no need for a landlord to register an exemption until there is a need to comply (for example a new tenancy is granted). However, the information in relation to the claimed exemption must be current at the time of registration; so if calculations change such that measures meet the payback rule at the date registration even though they did not a few months before when initial calculations were done then the landlord will no longer be able to register a valid exemption. It is also worth noting that exemptions are non-transferable between owners of a property.

Comment

With financial penalties in excess of £150,000 possible where a landlord has been in breach for three months or more, if enforcement authorities (the local weights and measures authority acting through, for example, trading standards officers or environmental health officers) prove proactive in an area these are provisions landlords will need to take note of.