by Claire Tofts

ASSOCIATE

The Government is pushing towards net zero UK emissions by 2050 and in recent years it has been passing legislation to improve standards of energy efficiency in domestic and non-domestic buildings in England and Wales.

Minimum Energy Efficiency Standard (MEES)

Since 2011 Energy Performance Certificates (‘EPCs’) have been required to be provided by the seller or landlord for most buildings being sold or leased.

Since 1 April 2018 most non-domestic buildings that are being let out (as a head lease or a sub-lease, a lease extension and/or a renewal lease) have had to have an EPC rating of E or above.

From 1 April 2023 this situation tightens up further so that landlords must not continue to let non-domestic buildings until an EPC rating of E has been met. It is estimated that around 20% of properties will be sub-standard.

Consequences

Not being able to continue an existing lease of a sub-standard property sounds alarming, but in fact any lease in existence on that date should not have any consequences in terms of legal status or effect. It is expected that the landlord and tenant will still be bound by the terms of the lease on both sides, and the tenant cannot simply give up and move out.

There is also no positive obligation in the regulations requiring the landlord to carry out any energy efficiency improvements. However the lease may contain provisions which require the landlord or the tenant to take steps in relation to energy efficiency measures.

The consequence of this change in the law is that there is a risk that the landlord will be subject to enforcement action.

Enforcement action could include fines or ‘naming and shaming’ in adverse publicity. The maximum financial penalty varies according to the type of property and the length of the breach prior to the date of service of the penalty notice.

Exclusions

There are some leases which the MEES regulations do not apply to, and some legitimate reasons why a lease can be granted or continue without an EPC rating of E or above.

For example, a landlord can continue to let a sub-standard property if all relevant energy efficiency improvements for the property have been made (or there are none that can be made) or an exemption applies.

In each case these must be validly registered on the PRS Exemptions Register to avoid enforcement action. Exemptions last for 5 years and they are personal to the person registering them so they do not benefit a subsequent buyer of the property.

There are also situations where no EPC is required at all.

Unhelpfully, the EPC regime does not dovetail with the MEES regulations, and in some cases they conflict. There are certainly some issues which the Courts will need to clarify in the coming years.

 

Owner-occupied properties

The MEES regulations do not apply to owner-occupied properties, but there are several reasons why an owner-occupier may also wish to consider energy efficiency improvements:

• To reduce utility costs for itself
• To potentially achieve a higher sale price
• To be ready if they later rent out the property, or sell to someone who intends to rent out the property

It is therefore wise to review energy efficiency issues for all non-domestic buildings now.

The future

‘The only way is up’ says the song, and the minimum rating required will no doubt rise over the coming years. It could be as high as a minimum C rating by April 2027 and a minimum B rating by April 2030.

Changes to building regulations will also mean that some EPC ratings will be lower when renewed after their 10 year validity. Previously acceptable properties could become sub-standard, even without the minimum rating rising.

This is a complex and evolving area of law and one of our legal specialists can help guide you through these issues.