Most non-domestic rented buildings will need to meet EPC B by 2030. Landlords may also need to achieve EPC C by 2027. As announced previously, most non-domestic rented buildings will need to meet EPC E by 2023.
Gary Cleary, Managing Director of CSR Sustain said: “This is a major shake up in how the energy efficiency of buildings is are measured and improved.
“A tough new compliance framework and the potential for more effective enforcement action means that landlords and investors will need to act swiftly and plan their long-term goals effectively.
“CSR Sustain is committed to working closely with landlords, property managers and real estate investors to help them meet energy efficiency requirements as cost-effectively as possible. We can advisee on a range of retrofit measures and associated costs for repositioning a building’s EPC rating out of MEES risk.”
The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 establish a minimum level of energy efficiency for privately rented property in England and Wales.
All buildings currently require every building to have an Energy Performance Certificate (EPC) when it is marketed for sale or let. An EPC measures a building’s energy efficiency on a banding system, with Band A buildings being most efficient and Band G buildings being least efficient.
Except where there is a valid exemption, it has been unlawful to let a non-residential building without a minimum efficiency rating of Band E or higher.
From April 2023, this minimum standard will be extended to rented non-domestic buildings, including buildings where the lease has not changed or been renewed since 2018. Exemptions can only usually be sought if a landlord can prove that improvement works will not be cost-effective under the seven year payback test.
The UK’s building stock is said to be responsible for 31% of the country’s greenhouse gas emissions. The government has proposed a number of changes to the MEES system to help tackle these emissions and ensure that landlords continue investing in the quality of their buildings.
The most significant proposal is to require non-domestic rented buildings to achieve a minimum efficiency standard of Band B by 2030, rather than Band E as it is presently. It is thought that this requirement will affect 85% of non-domestic rented buildings and could deliver 10.3TWh of energy savings by 2030.
The Band B 2030 proposal was first raised by the government in 2019 and was confirmed as government policy in a white paper released in December 2020. Shortly afterwards, a new consultation was released on how the Band B standard could be implemented. This consultation included more detail on how the proposals could be introduced and enforced. The proposals indicate that MEES regulation changes will happen in two key stages.
In the first phases, landlords will be expected to achieve the requirements for EPC Band C by 2027 and, in the second, they will be expected to achieve EPC Band B by 2030. As previously, landlords will only be required to carry out improvement works if they are cost-effective under the seven-year payback test.
For the first target of EPC C by 2027, landlords must start the clock on a two-year‘ compliance window’ by submitting an EPC to a new online PRS compliance database by 1 April 2025. If a property is not already Band C or above, landlords will then have until 1 April 2027 to obtain a new EPC showing improvement.
For the second ‘compliance window’, landlords must submit a valid EPC to the same PRS database by 1 April 2028. This will start the clock on the second compliance window. Again, unless the EPC is band B or above, landlords must then obtain a new EPC showing improvement before 1 April 2030.
A valid exemption to either of these deadlines will show that landlords have already achieved the highest EPC band that a cost-effective package of measures would deliver. MEES enforcement and ‘shell-and-core’ lettings. One of the reasons why the government is keen to move the EPC system to an online database is because this will make it easier for local authorities to identify which properties are complying with MEES.
More generally, the proposals would mean a shift away from enforcement at the point of letting. This will benefit landlords and investors with buildings in a shell-and-core state, as it means properties do not necessarily need to be compliant when a building is let. The consultation also suggests that properties must be occupied by tenants for a minimum of six months before MEES enforcement action can be taken against the landlord. This proposal would benefit shell-and-core properties that are let close to or after any of the above compliance deadlines.
A new payback calculator – In order to prove that cost of improvement works will exceed energy savings, landlords must currently get three quotes for the work. The consultation proposes a new user-friendly payback calculator to make replace the three-quotes system.
Some tenant responsibility for MEES compliance – While not entirely clear, the consultation suggests that tenants may take some responsibility for fit-out works. This would be coupled with a duty of co-operation between landlords and tenants. A valid EPC at all times – Proposals suggest that all non-domestic rented buildings must have a valid EPC at all times. Exemptions to the MEES system would be reviewed at the beginning of each compliance window. New local authority powers – Local authorities will be able to issue a request to landlords and tenants to inspect a property’s MEES compliance.
It’s likely that the latest MEES proposals will have a significant impact on most landlords, property managers and investors. Below, we will briefly detail three of the biggest impacts that affected parties are likely to see, along with a short plea to let CSR Sustain guide you through the upcoming changes.
Meeting compliance window requirements and, if necessary, registering and managing exemptions will take time and mean additional costs for landlords and investors.
Meeting the requirements of Bands E, C and B will mean additional costs. These efficiency measures will lead to future cost savings, but landlords may not always be able to benefit from these savings. Whether part or all of the cost of improvements can be passed onto tenants will depend on the terms of any existing leases.
Any new leases should be negotiated in light of the MEES proposals. Depending on the length of a lease, a landlord may argue that tenants should pay for future efficiency improvements because they will see efficiency savings. Tenants, meanwhile, may argue that landlords should bear the cost of improvement because they will benefit from the increased value of the property.
Historically, MEES regulations have not been well enforced. This is due primarily to local authorities having imperfect information. The changes described above would give local authorities more useful information and could lead to more enforcement action in cases where buildings are not MEES compliant.
However, enforcement action may still be hampered by the fact that many local authorities are low on resources and have no financial incentive to enforce MEES regulations.
The best way to manage changes to the MEES regulations is to use a trusted partner.
CSR Sustain is committed to working closely with landlords, property managers and real estate investors to help them meet energy efficiency requirements as cost-effectively as possible. We can advise on a range of retrofit measures and associated costs for repositioning a building’s EPC rating out of MEES risk. For more information call: 0161 762 5670