The system of obtaining an EPC rating for commercial property when a property is either sold or let is now well established. The Government has now published its response to a recent consultation and whilst it is still waiting for parliamentary approval, the guidance for the future is now clearer. Minimum Energy Efficiency Standards (MEES) will apply to all new lettings and sales from 1st April 2018 and all let properties will be required to be brought up to an ‘E’ rating by April 2023. MEES can be summarised as follows: –
• The property will be substandard if it has a rating of ‘F’ or below.
• All properties will have to comply after 1st April 2018 and this will also include lease renewals where an existing EPC exists. If the property has a rating below ‘E’ the landlord will have six months after the lease is granted to comply.
• MEES will also apply to existing leases from 1st April 2023. The main exemptions are leases granted for a term of six months or less, or those on listed buildings. There are some other exemptions which a landlord may be able to rely on.
• Enforcement of the minimum standards will be carried out by the local Trading Standards Office and penalty fines of between £5,000 and £150,000 may be applicable in the event of failure to comply. MEES will apply to buildings let in a shell specification.
• Properties will be exempt after all possible cost effective improvements have been carried out. Landlords may be exempt if third party consents are not available or if compliance would devalue the property by more than 5%.
• From 2023 it is possible that a successor landlord of a substandard property will either need to bring the property up to an ‘E’ rating within six months of acquisition or establish a new exemption.
It is probable that the cost of improvements will fall upon the landlord unless a tenant has entered into an express contractual obligation to the contrary. Therefore, it is important that leases are drafted to ensure that the repair and related EPC rating covenants are robust, although it will be unusual for the repairing obligation to oblige a tenant to undertake improvement works to the minimum standard.
It will cause potential issues in dilapidations schedules, whether MEES works are an improvement or repair, and ingoing tenants will be wary of express covenants to carry out energy efficiency improvements.
There may be practical difficulties in future when repairs are required whilst a tenant is in occupation. Therefore, the landlord’s reserved rights will have to be robust and a compliant tenant essential. If you have a property with an ‘F’ or ‘G’ rating and a new lease being granted which goes beyond 2023, appropriate terms should be negotiated to ensure that both landlord and tenant are aware of the ramifications and associated costs of MEES. Better still the property should be improved to an ‘E’ rating or better to avoid future management problems.
Keith Beaumont BSc (Hons) MRICS
Director & RICS Registered Valuer
STRATTON CREBER COMMERCIAL