1. MINIMUM ENERGY PERFORMANCE STANDARDS -
CHANGES IN THE COMMERCIAL PROPERTY SECTOR
Following the implementation of the Energy Act 2011, the Department of Energy and Climate Change (DECC) released their
consultation paper in July 2014 on the proposed Minimum Energy Performance Standards (MEPS) regulations. Draft
responses were issued by DECC together with draft regulations on 5 February 2015 and it is envisaged that the regulations
will come into force on 1
st
October 2016.
This MEPS will apply to both domestic and non-domestic properties but this note focuses on the
non-domestic regulations. In the simplest terms, under the regulations it will become unlawful to let
an affected property that does not meet the MEPS. The regulations indicate that, subject to
Parliamentary approval, the minimal rating required will be an “E” rating. Any landlord of a sub-
standard property with a rating of “F” or “G” who wants to let it will have to carry out energy improvement works to bring the
rating to “E” or above unless they can rely on the exemptions set out in the regulations.
Relying on the exemptions will require landlords to register key information on a PRS Exemptions Register to be maintained
by the Secretary of State and the exemption will only be valid for 5 years after which the landlord will have to renew any
exemption application it has made.
Whilst implementation and enforcement of the new regulations seems like a long way away they will undoubtedly pose
challenges for affected property owners, being 18% of the current property market according to some estimates. It will leave
many with the dilemma of whether to carry out the works at their cost now or wait for the government’s “Green Deal”-like
finance arrangement to kick in and risk having unlettable premises when the regulations come into effect. The fact that the
regulations will be enforced on landlords not occupiers and current market conditions could also make it difficult for landlords
to pass on the responsibilities to their tenants who may be reluctant to pay for such works when they do not have to.
This note sets out the key details of the regulations for landlords to consider.
WHICH PROPERTIES WILL BE AFFECTED?
All rental properties that currently require and EPC under the existing Energy Performance of Buildings (England and Wales)
Regulations (EPCR) 2012 (as amended) will be caught by the new MEPS regulations.
It is important to note that the Energy Act 2011 does not accord any additional powers to force the need for an EPC
where the property does not already require one.
Therefore, any properties that do not currently require an EPC will not be caught be the MEPS regulations, these include in
particular the following types of property:
(a) buildings officially protected as part of a designated environment or because of their special architectural or historical
merit;
(b) buildings used as places of worship and for religious activities;
(c) temporary buildings with a time of use of two years or less;
(d) industrial sites, workshops and non-residential agricultural buildings with low energy demand;
(e) non-residential agricultural buildings which are in use by a sector covered by a national sectoral agreement on
energy performance;
(f) residential buildings which are used or intended to be used for less than four months of the year; and
(g) stand-alone buildings with a total useful floor area of less than 50m².
2. WHICH TRANSACTIONS WILL BE AFFECTED?
Any letting transaction where an EPC would ordinarily be required will trigger the MEPS regulations. Interestingly, the
Government propose that the regulations will also apply to lease renewals where the property has an EPC.
The non-domestic MEPS regulations will not apply to property:
outside England or Wales;
which is a dwelling (there are separate regulations for domestic properties);
occupied under a licence, not a lease;
where the lease to be granted is for less than 6 months with no renewal provisions and the tenant has not been in
occupation for 12 consecutive months;
where the lease to be granted is over 99 years.
WHO WILL BE RESPONSIBLE FOR MEPS?
The primary obligation for MEPS will be on the building owner i.e. the Landlord and whilst Landlord’s might try to pass on
the responsibility to occupiers, the new regulations will enforce against the property owner, whatever they have agreed with
the Tenants.
WHEN AND HOW THE NON-DOMESTIC MEPS REGULATIONS APPLY
From 1 April 2018 the regulations will apply upon granting of any lease to a new tenant or any lease to an existing
tenant.
From 1 April 2023 the regulations will be rolled out against all privately rented property within the scope of the
regulations, including where a lease is already in place.
Note: Landlords will have 6 months from the date that they become Landlord to comply with the regulations.
PROPOSED MEPS EXEMPTIONS
Where a property and transaction is caught be the MEPS regulations all or any one of the following exemptions can apply:
a) If the energy efficiency improvements would negatively affect the market value of the property by more than 5%;
b) If all improvements that involve no up-front cost have been carried out and the rating still falls below “E”; and
c) If any third party consent required to the energy efficiency improvement works is refused.
The exemptions only apply for a period of 5 years, or in the case of point c), where a new occupier takes the property and
that a landlord can only rely on the exemptions where it has registered them on the PRS Exemptions Register.
ENFORCEMENT
Enforcement of the MEPS regulations is to be carried out by local authorities through the issuing of compliance notices and
subsequent penalty notices for continued breaches.
There will be financial penalties of up to £150,000 for breaches of the regulations which have existed for over 3 months from
the date a penalty notice is served. Financial penalties for registering false or misleading information on the PRS Exemptions
Register will be up to £5,000.
3. In addition the local authorities will have the ability to charge a “publication penalty” which will be a discretionary amount for
publishing information about any penalty notice on the PRS Exemptions Register.
WHAT TO DO NOW?
Landlords would be well advised to start considering how best to deal with any affected properties within their portfolios to
avoid the administrative burden of registering any exemptions and ensure their premises are fit for letting. Identifying any
properties which could be affected and the energy improvement works that need to be done is clearly key. However,
considering the terms of any tenancy arrangements and identifying opportunities to pass on or share the cost of doing any
energy improvement works now should not be over looked. Tenants may still be unaware of the regulations!
Contact: Helene Maillet-Vioud, helene.maillet-vioud@knightsllp.co.uk, Tel: 01782 338844
