Increase in MEES Regulation for Commercial Property

In April 2023, an extension of the MEES regulation will prohibit landlords from leasing out any commercial buildings with an EPC rating of F or lower.

The Current Position

Currently, landlords of commercial properties in England and Wales are prohibited from granting a new lease unless the property has an EPC rating of an E or higher (except where certain exemptions apply). This does not currently apply to existing leases.

The penalty for non-compliance is a fine based on 10-20% of the rateable value of the property (up to a maximum of £150k) per breach. The landlord in breach may also be published on a public register giving details of the breach.

The exemptions are:

• if the consent of a third party is required to carry out works but this is refused (such as a local planning authority);
• the improvements would result in a devaluation of the property by 5% or more or that the works would damage the property (valuation evidence needed);
• all cost-effective improvements have been carried out but this still does not result in an EPC rating of E or higher; and
• the “seven-year rule” whereby it can be shown that the improvements would not pay for themselves through energy savings within a seven-year period.
Exemptions are not automatic and require registration in advance on a government register. Exemptions need to be renewed at least every 5 years.

1 April 2023

On 1 April 2023, the prohibition on letting a commercial property with an EPC rating below an E will also apply to continuing/existing leases as well as new leases.
This means that all commercial properties being let after that date should have a minimum EPC rating of an E from 1 April 2023 (unless a valid exemption has been registered).

The Future

In 2020 the government released a white paper suggesting that commercial properties should have an EPC rating of B or higher by 2030. Last year a further consultation suggested an incremental increase with a suggestion of EPC rating of C or higher by 1 April 2027, rising to a B or higher by 2030. Although we are still at the drafting stage on this legislation, the indication is that EPC rating requirements on commercial buildings are only going to go up. This should continue to inform planned investment scheduling, lease renewal negotiations and terms of new leases going forwards.

What should Landlords do?

• Check the EPC rating of their portfolio to identify any non-compliant properties, applying promptly for any exemptions.
• Where possible look at future proofing properties to keep in line with the anticipated changes to MEES when undertaking works
• Get clear on who is responsible for the works and what rights they have to access the property and do the works before the deadline.

What should Tenant’s do?

• Check leases to see whether or not the costs of building improvements needed to increase the EPC rating are the landlord’s or their responsibility.
• Get clarity on the landlord’s rights (if any) to enter the property to carry out energy improvement works, any protections which would minimise disruption.
• For proposed alterations or fit-out works, consider whether better energy efficiency could be achieved for the same cost. It is likely that proposed alterations will be scrutinised in depth by landlords to ensure they wil not have an adverse impact on the EPC rating going forwards.
• Open lines of communication with their landlord

How can we help?
If you are not sure what rights you have in respect of a current lease or require support in negotiating a lease renewal or new tenancy to take this into account please contact [email protected]