Properties are Heating Up – New Minimum Energy Efficiency standard to come into force
On 1 April 2018 the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2018 ("the Regulations") will come into force, introducing Minimum Energy Efficiency Standards ("MEES") for privately rented properties, including retail properties.
This means that from 1 April 2018 landlords of non-domestic rented properties must not grant new tenancies or renew existing ones if the property in question has an Energy Performance Certificate ("EPC") rating of F or G. If a non-domestic property does not have a rating above F or G after 1 April 2023 it cannot be continued to be let at all. New landlords taking on properties will be exempt from the provisions for a period of 6 months.
The Regulations do, however, exempt some tenancy agreements and buildings from MEES. This includes:
buildings that are not required to have an EPC;
buildings that do not have an EPC or where the EPC is over 10 years old;
tenancies of less than 6 month in duration with no right of renewal; and
tenancies of over 99 years in duration.
Additionally the Regulations allow for certain properties to be let that it applies to should any of the exemptions below apply:
If the energy efficiency improvements required would make the market value of the property fall by more than 5%, as determined by an independent surveyor;
The tenant, superior landlord or planning authorities do not consent to the improvements being made, or impose conditions that the landlord cannot reasonably comply with; and
If the improvements required, as determined by an independent surveyor, which have not been made would not pay themselves off through savings in energy costs within 7 years.
Any applicable exemptions would have to be registered in the PRS Exemptions Register. False misleading information recorded on the register is subject to a £5,000 penalty.
Non-compliance with the Regulations will also incur varying levels of penalties. For any lettings of 3 months or shorter, the penalty is the equivalent of 10% of the property's rateable value, subject to a minimum penalty of £5,000 and a maximum of £10,000. Any lettings over 3 months will be subject to a penalty of 20% of the property's rateable value, amounting to a minimum of £10,000 and up to a maximum of £150,000.
There is additional government guidance on the application of MEES to a variety of non-domestic buildings, which should be reviewed to ensure compliance with MEES and other relevant legislation, such as the Energy Performance of Buildings (England and Wales) Regulations 2012.
Landlords and retail tenants alike will therefore have to ensure that they are compliant, and have fulfilled both their legal and contractual obligations in order to comply with the Regulations. Without compliance they can be subject to penalties and potential additional losses due to the inability to rent the properties after 1 April 2023.