After 25 March 2022, commercial landlords are permitted to exercise their usual remedies of enforcement for any missed payment of rent.
This note only relates to non-domestic properties. Different rules apply to domestic properties. All reference to properties herein refer to non-domestic properties.
From 1 April 2023, it is an offence to continue to let or rent out non-domestic properties if they have a valid Energy Performance Certificate (EPC) rating of F or G.
If your property has a valid EPC rating of F or G, you only have until 1 April 2023 to carry out sufficient energy efficiency works to improve the property rating to E, or register a valid exemption (if applicable) in order to comply with the Minimum Energy Efficiency Standard (MEES) Regulations, if you want to continue to let it. However, don’t despair as we are here to help you.
Landlords in England and Wales cannot grant a tenancy to either new or existing tenants of properties that have an EPC rating of F or G unless they have a legitimate reason for failing to make those improvements (which have been validly registered on the PRS Exemptions Register) to avoid enforcement action.
The current penalty for non-compliance is a financial one, which is based on 10-20% of the rateable value of the property between a minimum of £10,000 and a maximum of £150,000 per breach. Details of the breach may also be published on a public register.
Position from 1 April 2023
From 1 April 2023, it will be an offence for a landlord to continue to let a sub-standard commercial property (i.e. any property with a valid EPC with a rating of F or G) without a legitimate reason.
The penalty for non-compliance will remain the same.
The legitimate reasons for continuing to let a property with an EPC rating of F or G include:
- The property remains sub-standard despite all the “relevant energy efficiency improvements” for the property being carried out (or that there are none that can be made); or
- A valid exemption applies.
The available exemptions include:
- not being able to obtain consent from the tenant or a third party to do the relevant works (such as local planning authority),
- you have carried out all the cost-effective improvements that can be made and the property remains below an E, or
- the relevant works will devalue the property
These exemptions are not automatic and require registration before you intend to rely on them. Exemptions need to be renewed at least every 5 years. If there is no valid exemption registered on the PRS Exemptions Register, you may be in breach of the MEES Regulations and there is a risk of fines of up to £150,000 in addition to other penalties so failure to comply could be costly.
How will I be affected?
Landlords, investors, and developers are likely to be most affected by these new regulations as the key obligations and restrictions fall on them. Consideration must be given to:
- The financial cost of upgrading sub-standard properties
- The potential loss of income if a property cannot be rented out
- The potential cost of the fine for non-compliance
What should you be doing now?
The existing and new rules will affect most properties. With time running out until the implementation of the changes on 1 April 2023, action by you is needed sooner rather than later to minimise any risk of enforcement action for breach of the MEES Regulations. Early planning is essential! We recommend that you:
- Carry out a review of your portfolios of buildings to find out if you have any sub-standard properties or properties where they may now need to commission an EPC where it wasn’t a requirement previously.
- You should consider now if there are any exemptions available to you, and if so, ensure they are registered to avoid enforcement action.
- Given that such works could have significant financial and time implications for you, you should consider taking expert advice on what cost-effective improvements could be made to improve the rating as against more substantial works which may deliver a longer-term benefit.
- You should be contacting tenants or third parties, if consent is required for the works, and ensure that you keep a full record of all correspondence relating to obtaining the necessary consent
- Carry out a review of the service charge provisions in your leases to establish whether all/some of the cost of works can be recouped from the tenant.
- Obtain legal advice about reserving your rights in new leases that are granted to ensure that so far as possible you are complying with MEES in the future.
The MEES Regulations cannot be ignored! Failing to understand the impact of them and preparing correctly, will lead to increased costs and non-compliance.
A breach of the MEES Regulations does not invalidate any lease entered into and the tenant would still be liable to pay rent and comply with all the other lease terms.
How can we help?
The Property Disputes Team are fully aware of the existing and new MEES Regulations and their implications. We have been advising our clients on how to prepare for the new changes to ensure they don’t fall foul of the law.
This is what we can do to help:
- Advise you whether you are/will be in breach of the MEES Regulations;
- Identify whether you have a valid exemption to rely on in order to avoid enforcement action;
- Formally correspond with your tenant and/or third parties for consent;
- Review your lease(s) to ensure, as far as possible, your future compliance with the MEES Regulations.
Legal advice should be obtained sooner rather than later. Early advice means that you may avoid enforcement action being taken against you.
If you are not aware of the changes in the law on 1st April 2023, you are at risk of fines for non-compliance up to £150,000.
It is important to note that the minimum standard is more than likely going to rise in the future in view of the government’s proposals for future ratings. They have included a proposal that commercial properties must have an EPC rating of C or higher by 1 April 2027, rising to a B or higher by 2030, so contact us today and we will be happy to advise you on the best approach for you and your building portfolio.