From 1st April 2018, landlords of commercial buildings with an Energy Performance Certificate (EPC) of less than E will not be able to renew existing or grant new tenancies due to the implementation of the Minimum Energy Efficiency Standard (MEES). Introducing a new minimum EPC standard, 2018 will start the gradual retirement of the lowest F and G ratings. These will be truly phased out by MEES in 2023 – a move that the Government expects to impact approximately 18% of commercial properties that hold F or G EPCs. The repercussions for not complying with the legislation after the 1st April 2018 could be costly, as landlords can be fined up to a maximum of £150,000 if found in breach for three months or more.
Alongside the financial consequences of noncompliance, the reputational impact of not adhering to the legislation could also be a concern – especially for those with large property portfolios – as all breaches will be publicly accessible for at least one year on the Private Rented Sector (PRS) Exemptions Register.
However, there are several exemptions which, if registered, can help avoid non-compliance penalties. For example, MEES does not apply to buildings where the EPC is over 10 years’ old or where there is no EPC. It also does not apply to tenancies of more than 99 years or buildings that do not require an EPC, such as industrial sites or certain listed buildings. Due to the historic relevance of properties within Dorset and its surrounding areas, commercial landlords should seek legal advice to confirm whether their properties are within scope of the incoming regulations.
It is therefore, essential that landlords prepare ahead of April, auditing their properties to determine which are eligible or exempt from MEES and where within the phased legislation each tenancy will be renewed.
Of course, the most immediate concern for property owners is often the cost of upgrading non-compliant properties. However, forward-thinking can allow any upgrades to be scheduled and accounted for by, for example, evaluating the property’s increase in value or the potential of green leases. Green leases allow for costs for improving a building’s energy efficiency to be shared between the landlord and tenant, as the improvements benefit both parties over the duration of a tenancy by offering lower day-to-day running costs to the occupant.
April 2018 will see the beginning of an energy efficiency journey for the commercial property sector. To ensure that a building is MEES compliant and eligible for letting, landlords, especially those with larger portfolios, should seek guidance to establish if and when their properties will need to comply.