On the 26th March, 2015 the Energy Efficiency (Private Rented Sector) (England and Wales) Regulations passed into law. These regulations are better known as the minimum energy efficiency standards (MEES).
From 1 April 2018, Landlords will be required by law to get their most inefficient buildings to an energy efficiency rating of at least Band E which will be evidenced by an up to date Energy Performance Certificate. Evidence is that up to 35% of commercial buildings in the UK could fall below new energy efficiency standards by 2018.
These regulations will apply upon the granting of a new lease to a Tenant after 1st April 2018 but also renewal leases after that date. The regulations exclude any property which is let for a term of 6 months or less or on any lease of 99 years or more.
Penalties for non-compliance could be as high as £150,000 per property and include
- £5,000 for failing to comply with a compliance notice, or for providing false/misleading information.
- For less than 3 months of non-compliance the penalty is 10% of the rateable value, with a minimum penalty of £5000 and a maximum penalty of £50,000.
- For 3 months or more of non-compliance, the penalty is 20% of rateable value with a minimum penalty of £10,000 and a maximum penalty of £150,000.
Landlords should be reviewing their properties now to identify which properties will need refurbishment in order to achieve a minimum Band E, EPC by 1 April 2018.They should also consider their leases to be clear on who will pay and how best to structure their lease..
The obligation will not fall on the tenant within a “keep in good repair and condition” clause and nor will it fall within the standard yield up clause .Landlords will need to draft leases which oblige the Tenant to yield up the Premises so that they have “at least the same EPC rating” as when the Property was first let, or perhaps it “must be the minimum required under MEES”. Beware of course that the criteria for obtaining a particular EPC rating may tighten over time.
When preparing leases Landlords may want to permit MEES to be included within the scope of their service charge. Tenants may look to resist this to make sure it is clear that they are not liable for the cost of any works that are required directly as a result of MEES. Beware of these issues. Tenants may try to exclude responsibility from the standard statutory compliance clauses in leases by making clear that they are not liable in any event for the cost of any works that are required directly as a result of MEES. Landlords should check that their leases allow them to enter and do works to improve the EPC rating. Landlords may also want to draft their new leases so that their rent review provisions assume that the Landlord would carry out (at its own cost) any works required by the MEES regulations before the grant of the notional lease.
There will be many issues for Landlords and for Tenants to consider so if you would like some further advice speak to one of the commercial property team at Geoffrey Leaver on 01908 689314.