MEES: Is your property lettable?

On 1 April, the prohibition on granting a new tenancy of a property with an EPC rating of below E came into force. If a landlord breaches The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (the MEES regulations), they could face fines of up to £4,000 per domestic property and up to £150,000 per non-domestic property. The landlord could also be “named and shamed” on the PRS Exemptions Register.

Exemptions are available in the following circumstances, but must be registered before the tenancy is granted.

• All relevant energy efficiency works have been carried out

This is also applies if none could be made. Works to domestic properties will only fit within the definition of a relevant energy efficiency improvement if they can be wholly financed at no cost to the landlord. However, from 2019, it is envisaged that landlords will be obliged to spend up to £2,500 per property on trying to improve energy efficiency. This can add up over a large portfolio. Landlords of commercial properties are already expected to spend money in trying to improve the premises. However, there is a limit, and they will only have to carry out works if their cost can be recovered within seven years. This is calculated using a formula set out in the regulations. Extensive information is required to register this exemption, including three quotations from installers showing that payback within seven years would not be achieved.

• Consent cannot be obtained

Consent could be needed because the property is let to a tenant who will not give the landlord access to carry out works, or consent is required from a lender, superior landlord or planning authority. The landlord must have made “reasonable efforts” to obtain consent and must provide evidence that consent was sought and refused (or granted subject to a condition with which the landlord could not reasonably comply).

• The works would devalue the property

A landlord can let a sub-standard property if a relevant energy efficiency improvement would result in a reduction of more than 5% in the market value of the property, or the building of which it forms part. The landlord must have a report from an independent surveyor setting this out, and the report must be submitted when registering the exemption.

• Temporary exemptions

The list of circumstances in which a “grace period” can be sought includes where a lease is granted pursuant to a contractual obligation, where a renewal lease is granted under the Landlord and Tenant Act 1954 and where a new lease is deemed to have been created by operation of law. A temporary exemption must be registered and will only last for six months. After that, the landlord will either have to show and register a longer-term exemption (typically exemptions last for five years), or show that the property has an EPC rating of E or above. 

Even where an exemption is registered, a landlord is likely to find it difficult to let a sub-standard property (even for a lower rent) because tenants who want the freedom to sub-let will need to know that they can do so without being in breach of the MEES regulations.

Landlords cannot ignore the regulations. In deciding whether they should carry out works or register an exemption, they should be mindful that it is likely to become more difficult to let poorly rated properties in the future. The minimum rating may rise to C, and the EPC methodology is under review.

Last year’s Clean Growth Strategy showed that energy efficiency is a government priority. The outcome of the Call for Evidence on the Reform of the Green Deal Framework is awaited, and may affect the financing of energy efficiency improvements. A response to the Call for Evidence on Building a Market for Energy Efficiency is also due, which will have an effect in the coming years.