The Minimum Energy Efficiency Standard (MEES) came into effect in England and Wales in April 2018. They are a set of legal measures under the Climate Change Act 2008 which in turn led to the Energy Efficiency (Private Rented Property) Regulations 2015. These statutes are centred on the government’s commitment to reach net-zero greenhouse gas emissions by 2050.
Based off a grading system from A-G, with A being the most efficient, Energy Performance Certificates (EPCs) are needed whenever a property is built, sold, or rented and are valid for 10 years. They contain information about the property’s energy use, associated costs, and advice how to reduce them.
Under the Energy Act 2011 and associated regulations non domestic landlords must:
- Have an Energy Performance Certificate (EPC) where required, and provide a copy to leaseholders whenever they lease their properties out (The Energy Performance of Buildings (England and Wales) Regulations 2012), and
- Landlords must have at least an E rating on the EPC of all rented buildings (Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015)
From 1 April 2023, it will be unlawful to let out a commercial property with an EPC rating of F or G.
There are however certain exceptions to these regulations:
- Improvement works are prevented by third party restrictions.
- The proposed works would reduce the market value of a property.
- The cost of carrying out the improvement works is more than the expected value of energy savings over a seven-year period.
Any exemptions need to be registered on the Exemptions Register, but this is made public, which could pose a reputational risk for building owners, especially with the growing importance of Environmental, Social and Governance (ESG) credentials for businesses.
The responsibility for compliance with the MEES legislation rests with landlords and they will be liable if there is a breach with financial penalties ranging from £5,000 to £150,000.
According to the latest government statistics, roughly 10% of non-domestic rented stock has an EPC rating below E. This poses a number of financial implications for property owners, especially in the secondary and tertiary markets, as they will likely become liable for substantial renovation costs, or run the risk of depreciated asset values as investors seek sustainable investments.
These regulations are likely to strengthen over the years as the government is currently consulting on Commercial Minimum Energy Efficiency Standards with a preferred option of all non-domestic rented buildings having an EPC of A or B by April 2030.
To better understand these risks our agency, management and consultancy team advises our clients on developing appropriate strategies to mitigate future expenses and protect asset values.