Background
The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (“MEES Regulations”) are an attempt by the government to improve the energy efficiency of buildings, which are a major contributor of greenhouse gas emissions, by setting a minimum acceptable standard. The MEES Regulations are aimed at private rented properties (both residential and commercial).
Under the MEES Regulations, the energy efficiency of a property is recorded in an Energy Performance Certificate (“EPC”). EPCs were first introduced in 2007 and formed part of the historic and defunct ‘Home Information Packs’. An EPC is required in order to market any residential or commercial property for letting or sale, with certain exceptions. Up until now, the EPC has largely been ignored by property owners and their advisers. From April 2018, it will take on a far greater significance.
What are MEES?
The minimum energy efficiency standard decided upon by the government is that all privately rented properties should be graded from ‘A’ to ‘E’. Any properties graded ‘F’ or ‘G’ cannot be rented out until energy efficiency improvement works have been completed and the EPC grade has improved.
What are the deadlines?
- From 1 April 2018 a property owner will not be able to grant a new lease or tenancy of their property if the EPC rating is ‘F’ or ‘G’.
- From 1 April 2020 a property owner will not be able to continue to let their residential property if the EPC rating is ‘F’ or ‘G’. This covers residential properties that are already let out on Leases or Tenancies.
- From 1 April 2023 a property owner will not be able to continue to let their commercial property if the EPC rating is ‘F’ or ‘G’. This covers commercial properties that are already let out on Leases or Tenancies
What properties are affected?
All privately rented residential or commercial property unless:
- The property is not legally required to have an EPC
- The tenancy is for less than 6 months (unless it can be extended)
- The Lease is granted for 99 years or more.
Owner-occupied properties are not affected by the MEES Regulations, but that is not to say the government will not introduce new measures affecting homeowners in the future!
Housing Association and other low cost social housing is not affected by the MEES Regulations.
What Leases/Tenancies are affected?
For residential properties, the following are affected:-
- Assured Tenancies – this covers most residential tenancy agreements for a term over 6 months
- Regulated Tenancies – these are mainly historic tenancies under the Rent Act 1997
- Agricultural Tenancies – includes various types of agricultural tenancies or occupancies
But not properties let by a Local Authority or Housing Association, leases granted after 1 April 1990 with a rent of over £100,000, leases with no rent, leases at a low rent (i.e. under £1,000 in London or £250 elsewhere), leases to students by particular educational institutions, holiday lettings, leases from the Crown or a government department, leases granted to a Company etc.
For commercial properties, any lease or tenancy of a property that is not a ‘dwelling’ (i.e. a residential property) is affected, unless:-
· it is not required to have an EPC under the various regulations; or
· it is a lease or tenancy granted for less than six months (unless there are provisions for the lease/tenancy to be extended or if the tenant has already been in occupation for more than 12 months at the time the lease/tenancy is granted); or
· it is a lease or tenancy granted for 99 years or more.
Are there any exemptions?
The regulations will not apply where the property owner can prove that one of the following applies:-
- The improvements required to increase the energy efficiency of the property are not cost-effective. There are detailed provisions setting out how this should be calculated. Different rules apply to residential and commercial property.
- The property owner cannot obtain the necessary consents to carry out the energy efficiency improvements, despite reasonable efforts to do so. The necessary consents may be from the tenants in occupation of the property, the lender or a superior landlord.
- The energy efficiency improvements will reduce the value of the property (or the building that the property forms part of) by a minimum of 5%. This must be evidenced by an independent surveyor’s report.
If an exemption applies, the property owner must register the exemption on the PRS Exemptions Register, which is maintained by the Secretary of State. The exemption will last for 5 years. Once the exemption has expired, the property owner must either increase the EPC rating to ‘E’ or above or show that a new exemption applies.
What happens if I do not comply?
Enforcement action can be taken by the Local Authority. Where the Local Authority thinks a property owner may be in breach of the MEES Regulations, it can serve a Compliance Notice requiring the property owner to provide evidence of compliance.
Where the Local Authority is satisfied the property owner is in breach of the MEES Regulations, it can issue a Penalty Notice imposing a financial penalty and a Publication Penalty, which means the name of the property owner will be ‘named and shamed’ on the PRS Exemptions Register.
The property owner has the right to request a review and then, if the Penalty Notice is confirmed, may to appeal to the First-Tier Property Tribunal.
It is also possible that lenders may start to refuse to lend on properties where the EPC rating is ‘F’ or ‘G’.
What should I do?
If you own a residential or commercial property, or are looking to buy one, that is currently rented out or you intend to rent out in the future, you should first consult the EPC Register at https://www.epcregister.com/reportSearchAddressByPostcode.html
Simply read and accept the Terms, then enter the postcode for your property to see whether there is a current EPC (i.e. an EPC issued within the last 10 years). If there is a current EPC, check the rating for the Property. As long as this is ‘A’ to ‘E’, you are fine to rent out your Property.
If the rating is ‘F’ or ‘G’, then you need to take action now. You should consult a Surveyor to ascertain what works can be carried out to the property to improve the EPC rating. Once the works have been completed, you should commission a new EPC to confirm the new rating.
If there is no current EPC for the property, then the MEES Regulations do not require you to obtain an EPC. The usual EPC rules apply, so an EPC is only required on a sale or letting of the property. However, if you intend to sell or let the property in the near future, you should consider obtaining an EPC in advance; especially if you suspect that the rating may be low. To commission an EPC, you should speak to a local Estate Agent or Surveyor.
If you are considering the purchase of a buy-to-let property and the EPC rating is ‘F’ or ‘G’, you should consider the cost of the improvement works and the impact this has on the valuation of the Property. There may be scope to reduce the price of the Property.
If an affected tenancy is granted by operation of law, or a non-compliant property is acquired with a tenant in occupation, the Landlord has a six month period to improve the property or prove an exemption applies.
What are the other effects of the MEES Regulations?
From 1 April 2016 a Tenant of a residential property has the right to request consent from the owner to carry out energy efficiency improvement works to the property, even if the Lease/Tenancy Agreement restricts or prevents the Tenant from making improvements to the property. Upon receiving such a request, the Landlord must not unreasonably withhold their consent.
Kay Piper, Partner at Lyndales Solicitors
