From 1 April 2023, the regulations are tightening and it will become unlawful for a landlord to “continue to let” a sub-standard property unless they have made all possible cost-effective energy efficiency improvements prescribed by MEES or one of the exemptions applies.
Landlords .. will need to act soon
Landlords of existing leases of commercial premises that fall below this standard will need to act soon. All commercial landlords should take note that the tightening of obligations under MEES will not end after 1 April 2023.
Note, however, this only applies to properties requiring an EPC.
Premises that are not required to have an EPC include: certain listed buildings, holiday accommodations that are rented out for less than four months a year or let under a licence to occupy, and industrial sites and workshops that do not use a lot of energy.
Landlords who do not meet the new requirements will be liable to two significant penalties: a financial penalty and a publication penalty. The financial penalties that can be imposed are for letting a non-compliant property for a period of less than three months – a fine of 10% of the rateable value with a minimum fine of £5,000 and a maximum of £50,000. For letting a non-compliant property for a period of more than three months, a fine can be imposed of 20% of the rateable value with a minimum fine of £10,000 to a maximum of £150,000.
As with domestic properties, exemptions apply. These include:
- The seven-year payback test. This applies if the improvement works necessitated by MEES are not paid for within seven years by the energy savings from the works.
- Third-party consent. Depending on the circumstances, certain energy efficiency improvements may legally require the consent of a third-party before they can be installed at the premises. For example, the improvements could include external wall insulation or solar panels, which require local authority planning consent or, perhaps, the consent of a mortgagee of the premises. Where the landlord has used reasonable efforts but has been unable to obtain required consents, this exemption applies.
- Devaluation. This applies when the landlord has obtained a report from a surveyor that advises that the installation of energy-efficiency measures would result in reducing the market value of the premises (or the building that the premises forms part of) by 5%.
The exemptions generally last for five years, after which the landlord must try again to improve the EPC of the premises in accordance with MEES. If this is still not possible, then a further exemption may be registered. The exemption must be registered in advance for a landlord to be able to rely on it without risk of attracting penalties, and exemptions are not transferable to a buyer if the property is sold.