What is the Minimum Energy Efficiency Standard?

In this month’s blog we’ll explore another of the key pieces of energy legislation that has recently been introduced. The Minimum Energy Efficiency Standard (MEES) which came into force from 1st April 2018.

What is the Minimum Energy Efficiency Standard?

MEES was introduced in March 2015, originating from the Energy Act 2011. This brought in the requirement for landlords of both domestic and non-domestic properties to have Energy Performance Certificates (EPC), allowing the tenants to clearly understand the energy efficiency of the property before they agree to enter into the lease.

The certificates provide an energy efficiency rating between A and G, with G being the worst performing. This rating system is easy to understand as it closely resembles existing energy ratings such as those used for domestic electrical products.

Why the new legislation?

The government is implementing the next step in the MEES process. This is to move from solely using the increased demand from tenants for greater energy efficiency and add to it legislation that uses law to drive improvement.

“18% of all commercial properties hold the lowest EPC ratings of F and G”

In considering how they might achieve these goals, the government can now see through EPC data that around 18% of all commercial properties hold the lowest EPC ratings of F and G. While Building Regulations will ensure that new properties are more energy efficient that won’t deal with older properties; that is where the new MEES regulations will have their effect.

What are the new standards?

From 1st April 2018
landlords of buildings within the scope of the MEES regulations must not renew existing tenancies or grant new tenancies if the building has less than the minimum energy performance certificate rating of E
After 1st April 2023
landlords must not continue to let any buildings which have an EPC rating of less than E.

So landlords of those 18% of commercial properties need to look at their planning for making the required changes now. Of course those whose properties are rated E or higher cannot be complacent. We can be sure that the way ratings are measured will continue to become more stringent and also that any premium in rental income currently being received for having a D or E rating will diminish as this becomes the market minimum.

What are the penalties?

These will be set by reference to the property’s rateable value. For properties let out for 3 months or less in breach of MEES standards the penalty will be 10% of the property’s rateable value, subject to a minimum of £5,000 and maximum of £50,000. After being let for 3 months or more in breach the penalty rises to 20%, with a minimum of £10,000 and maximum of £150,000.

So another set of potential penalties the government are using to motivate action……

“maximum penalty of £150,000”

Note that being in breach of the MEES regulations doesn’t mean that the lease becomes invalid.

What do you need to consider?

While the above standards (and penalties) appear clear and straight forward to understand there are, unsurprisingly, additional areas that need to be considered.

Does MEES apply to your building/tenancy?

Being certain of this is not necessarily easy and is the starting point of any advice that we give to our clients. A couple of examples of buildings which MEES doesn’t apply to are agricultural buildings with low energy usage and certain listed buildings.

Exempt buildings

Landlords can let buildings below the new minimum standards if any of the exemptions applies. These need to be registered on the government’s PRS Exemptions Register; the exemptions are:

  • The Golden Rule: where an independent assessor shows that all relevant energy efficiency improvements have been made to the property. Or that improvements that could be made would not pay for themselves through energy efficiencies within 7 years.
  • Devaluation: where an independent surveyor shows that making the relevant energy efficient improvements that could be made are likely to devalue the property’s market value by over 5%.
  • 3rd Party Consent: where consent from parties such as planning authorities, tenants or superior landlords has been refused or offered with conditions which the landlord cannot reasonably meet.

Again there is the need to gain expert opinion and proof to see if you are able to qualify for any of these exemptions and ensure that they are correctly registered. As these exemptions are only valid for 5 years there is the need to review eligibility for further exemptions and reapply in good time.

“there is the need to gain expert opinion”

Who pays?

As the third exemption suggests taking the steps needed to meet the MEES regulations will require the landlord to have a conversation with the other parties involved. You can imagine that the question at the top of everyone’s agenda will be “How much will the improvements cost and will I need to pay for them?”

To answer the question of who will be responsible for bearing the cost of the improvements the first step will be the terms of the lease and likely move onto the discussion of whether these are repairs or actual improvements to the property. We can help guide you in your approach to initiating these discussions and the negotiations that follow.

For those entering new leases there is a clear need to look at the benefit of including wording dealing with this area. Again we are happy to work with you and your solicitor through this process.

“How much will the improvements cost and will I need to pay for them?”

What do you need to do?

As you would have realised by now there is a clear need to understand what your position is, whether you need to take any actions, and then get begin planning how and when the actions are implemented.

Here at UK Energy Management we have the expertise to provide you with the clarity of what is required to comply with the MEES regulations and set out how to achieve them in a cost-efficient way. UK Energy Management deliver:

  • Expert impartial advice
  • ROI calculations
  • Established and trusted suppliers and installers

We will be your hub throughout the process utilising the relationships we have with other experts who may need to be involved.

So if you are unsure where you stand regarding MEES then contact us for an initial consultation on 020 3893 8108 and mailto:contactus@ukenergymanagers.com today.