The effect of MEES regulations on commercial property by 2030

The minimum energy efficiency standards

The minimum energy efficiency standards (MEES) make it unlawful for a landlord to grant a new tenancy or to extend or renew an existing tenancy of certain property having an Energy Performance Certificate (EPC) rating of F or G unless:

• all the relevant energy efficiency improvements for the property have been made; or

• an exemption applies.

From 01 April 2023, the scope of MEES will extend to existing tenancies of most commercial property and will restrict a landlord's ability to continue to let property with an F or G rating.  The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (the PRS Regulations) set out the detailed MEES regime.

Moving to EPC B...

It has always been anticipated that the bar will be raised and in the energy white paper the Government confirmed that the future trajectory for MEES in relation to commercial property will be EPC band B by 2030, where cost effective.  The Government estimates that the proportion of rented commercial property covered by MEES will increase from around 10% to around 85% (approximately 1,000,000 buildings across England and Wales).

The Government is now consulting on proposals to deliver this policy and improve the implementation and enforcement of MEES.  In terms of enforcement the current system is seen as being time-consuming and resource intensive. It is not easy for local authorities to access, co-ordinate and act on existing data.

The consultation notes that the original aim of the MEES regulations was to ensure that landlords of the lowest rated non-domestic buildings were investing in improving their properties.  However it states that "[t]he future EPC B requirement is an ambitious target designed to drive the UK towards net zero, by encouraging investment in the fabric and services of rented non-domestic buildings throughout the stock".

Key proposals from the consultation include:

• a phased implementation of the EPC B by 2030 requirement, with EPC C by 2027 set as an interim milestone. This phased implementation will be based on two-year compliance windows. The first compliance window (EPC C) will run from 2025-2027 and the second window (EPC B) from 2028-2030. Landlords will be required to present a valid EPC two years before the enforcement date for each EPC target, which the consultation states is a notable change. The consultation sets out the following steps: 

  First Compliance Window: EPC C (2025-2027)

  • 1 April 2025: landlords of all non-domestic rented buildings within the scope of MEES must present a valid EPC. 

  • 1 April 2027: all non-domestic rented buildings must have improved the building to EPC ≥ C, or registered a valid exemption.  

  Second Compliance Window: EPC B (2028 - 2030)

  • 1 April 2028: landlords of all non-domestic rented buildings within the scope of MEES must present a valid EPC.

  • 1 April 2030: all non-domestic rented buildings must have improved the building to EPC ≥ B, or registered a valid exemption. 

  At each enforcement date in 2027 and 2030, landlords will need to demonstrate that buildings have reached the highest EPC band that a cost-effective package of measures can deliver. All exemptions are to be reviewed at the start of each compliance window;

• a move away from enforcement at the point of let;

• amending the PRS Regulations to give commercial tenants some legal obligations regarding compliance with the MEES rules and consequent duties of cooperation for both landlords and tenants;

• to support landlords with the seven-year payback test the Government proposes a 'payback calculator' with standardised purchase and installation costs of energy efficiency measures. The option to obtain three quotes may be retained for those wishing to dispute the calculator. Installing a package of energy efficiency measures may also be mandated;

• a continual requirement for landlords to have an EPC. This is to ensure that all lease renewals and properties where the tenancy is ongoing but the EPC has expired are caught;

• a requirement that landlords provide a valid EPC to letting agents prior to a property being put on the market. Existing exemptions would be removed so there would be no circumstances in which a property could be marketed or let without a valid EPC. The Government is looking to place a requirement on letting agents and online property platforms to only advertise and let properties compliant with the PRS Regulations;

• post-improvement EPCs to demonstrate compliance with MEES;

• a new six-month temporary exemption for shell and core let properties;

• a requirement that listed buildings and those in a conservation area that are to be rented out have an EPC. This measure is intended to address the current uncertainty as to whether many listed buildings are required to have an EPC and therefore fall within the MEES regime;

• introducing a property compliance and exemptions database. The consultation suggests a lack of co-ordination and gaps in relation to existing EPC/MEES data that hinders enforcement.  A new central database, operated by a third party, would be introduced to "provide scrutiny and a decision for the exemptions, as well as guidance on compliance and exemptions". Landlords will need to provide a copy of a valid EPC for inclusion in the database demonstrating compliance with the PRS Regulations.  The Government notes that this would be the method by which landlords will fulfil the proposed requirement to present an EPC at the start of each compliance window, as set out above. A registration fee of £30 per property, inclusive of VAT, is proposed, though the Government is considering whether there should be a maximum total registration fee for landlords with very large portfolios;

• in addition to existing penalties (which include a maximum fine of £150,000 if a property has been let in breach of the PRS Regulations), landlords may also be fined up to £5,000 for the following breaches:

  • failing to register their property on the proposed PRS exemptions and compliance database;

  • failing to present a valid EPC by the required dates set out under the proposed compliance windows regime;

  • registering false or misleading information; or

  • failing to provide a post-improvement EPC to demonstrate compliance.

  It is proposed that local authorities will have a right to request permission to inspect properties in relation to MEES enforcement.

The Government is also looking at policy measures to support the uptake of smart meters in the private rented sector. 

The Government makes it clear that "the interim EPC C milestone should not discourage landlords from undertaking one larger retrofit to meet the EPC B requirement ahead of 2030 where this proves cost effective".

The consultation closes on 9 June 2021 and a response is expected later in the year. This will be followed by legislation, with amendments to the PRS Regulations set to come into force on 1 April 2025.