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MEES Legal Standard to Apply to Commercial and Domestic Lets

From April 2018, the minimum energy efficiency standard (MEES) will apply to commercial and domestic buildings that are rented.

It’s a change that will bring both opportunities and challenges for landlords, lenders, developers, and freehold investors.  

The minimum energy efficiency standard (MEES), which took effect in England and Wales in 2015, gave both commercial and domestic buildings energy-efficiency ratings that range from A to G, with F and G being signs of poor performance. Starting in April, it will be illegal to let buildings that do not achieve a minimum rating of E. Unless an exemption is successfully registered by the landlord, no new tenancies will be granted or existing tenancies renewed for F or G rated buildings. 

What do landlords have to do to prepare? 

Domestic and commercial landlords can prepare for the new standard by reviewing their portfolios to determine which buildings are within scope of the regulations, seeing if exemptions might apply, and reviewing their leases to get a firm understanding of their rights and responsibilities under MEES. 

What do freehold investors have to do to prepare? 

Freehold investors with a headlease term exceeding 99 years will not be regarded as landlords under the MEES Regulations. Their primary concern will be the possibility of value reduction in any building asset that rates below E. If improvements are necessary, they will have to be resourceful to find tenant landlords willing to sublet a building. 

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What do developers have to do to prepare? 

Developers who own properties awaiting development could face challenges similar to freehold investors. Like landlords, they can prepare for the April 1 changes now by closely examining their portfolios to see which of their properties may fall within the scope of the MEES Regulations and gaining a proper understanding of how any future development programmes will fit in with the announced MEES timetable. 

Which buildings and tenancies are affected by MEES? 

MEES does not apply to all buildings. Exceptions to the rules will include: 

  • Properties that are not required to have an EPC, such as workshops, industrial sites, holiday lets, and certain listed buildings 
  • Buildings with no EPC 
  • Tenancies of over 99 years 
  • Tenancies of less than six months, without any renewal rights 

What are the exemptions? 

Landlords in England and Wales can let a building with an F or G standard if: 

  • A third-party assessor determines that any required improvements would not pay for themselves in terms of energy savings within seven years. 
  • A third-party surveyor finds that required improvements would devalue the property’s market value by over 5%. 
  • Consent from relevant third parties such as planning authorities or a tenant has been refused or given under conditions that cannot be complied with at reasonable cost and effort. 

These exemptions are non-transferable and are only valid for five years. 

What are the penalties for noncompliance? 

Landlords who rent a property for less than three months in breach of MEES Regulations will be fined an amount equal to 10% of the building’s rateable value. After three months the fine will increase to 20% of this value. 

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