The 1st April 2020 saw the second stage of the roll out of the Minimum Energy Efficiency Standard Regulations (MEES Regulations), bringing further responsibility on both domestic and commercial property landlords in respect of energy efficiency.
Forming a key part of The Energy Efficiency (Private Rented Sector) (England and Wales) Regulations 2015, the MEES Regulations have already been in force for over a year on new or renewed tenancy agreements, but will now also apply to all tenancies in place.
The introduction of MEES Regulations has been rolled out in two phases:
Phase 1 was introduced on 1stApril 2018. From this date, it became unlawful for landlords (both domestic and non-domestic) to grant a new tenancy if the property’s EPC rating fell below an E. This requirement also applied to all renewal tenancies to the same tenant for the same property on or after 1st April 2018.
Phase 2 of the regulations came into force for domestic landlords on 1st April 2020. From this date, it became unlawful to rent any domestic property with an EPC rating of less than an E. This included all current tenancies that were in place (lease granted on or before 1st April 2018). Landlords of non-domestic properties have until 1st April 2023 before the same regulations are introduced.
There are certain instances where a Landlord can apply for an exemption under the MEES Regulations. They need to register this exemption with the PRS Exemptions Register. Exemptions include:
All relevant improvements made exemption: The EPC rating for a property remains below an E even after relevant improvements (up to the £3500 cost cap) have been made.
To clarify, landlords would need to spend the £3,500 (including VAT) on measures even if those measures don’t achieve the minimum EPC rate before they can claim the exemption. For the exemption to be successfully claimed, a proper evaluation would need to be made. This may include a package of measures rather than a single measure.
High cost exemption: Where a Landlord is unable to make any improvements to the property because the cheapest recommended measure would exceed the £3500 cost cap.
Wall insulation exemption: The only recommended improvements are cavity wall insulation, external wall insulation, or internal wall insulation (for external walls) alongside expert advice stating that such measures would negatively affect the fabric or structure of the building.
Consent exemption: Where the improvements require consent from a third party (such as a superior landlord, mortgagee, planning authority or a tenant) and despite reasonable efforts from the landlord, such consent could not be obtained.
Devaluation exemption: Where an independent RICS surveyor/registered valuer identifies that any energy efficiency improvement would decrease the market value of the property by more than 5%.
New landlord exemption: In certain circumstances, new landlords will not be expected to take immediate action to improve their property’s EPC rating to an E. Instead, they can claim a 6-month exemption from the day they became a landlord. After the 6 months has expired, they should have improved the property’s EPC rating to an E, or, if they have valid grounds register for a further exemption.
Landlords who fail to comply with The MEES Regulations may face enforcement action from local authorities by way of compliance notices or financial penalties. Financial penalties for domestic landlords can reach up to £5000, with non-domestic landlords potentially facing even greater penalties based on the premises rateable value.
These regulations clearly present potential issues for landlords and are yet another regulative hurdle to be placed on property investors/landlords. Existing Landlords may have to spend money to upgrade their properties, and new prospective landlords would be advised to conduct further due-diligence when purchasing a property to ensure that the comply with regulations.