On 23rd February 2017 the Department for Business, Energy and Industrial Strategy (BEIS) published the guidance for landlords and enforcement authorities on the minimum level of energy efficiency required to let non-domestic property under the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015. This long awaited guidance details the requirements against which compliance of the minimum energy efficiency standards (MEES) will be measured and gives clarity to the numerous unanswered questions many have been asking since the legislation was passed two years ago.
The Energy Efficiency Regulations aim to tackle the least energy efficient properties in England and Wales – those rated F or G on Energy Performance Certificates (EPC). The Regulations establish a minimum standard of an E rating for both domestic and non-domestic privately rented property. By increasing the energy efficiency of non-domestic stock, the Government aims to increase energy security whilst the demand for energy efficiency measures is expected to support growth and jobs within the green construction industry and the wider supply chain for energy efficiency products.
The guidance document has seen several drafts before the final document was published. There has been a great deal of discussion around the interpretation of the requirements of the regulations taking into account the cosmic array of scenarios under which a property can be leased. It is great to see that many of the situations that were put forward as potential lettings have been addressed.
Some key areas that have been the topic of much debate and are now included in the guidance as a direct result of industry feedback are as follows:
EPC Requirements – Where a building is required to have an EPC due to a sale, letting or modification the landlord will be subject to non-compliance penalties for not registering a valid EPC. Where a building is exempt from requiring an EPC, or the need for a new EPC has not been triggered, the building will not be subject to the minimum standards. There is no requirement to obtain an EPC to comply with MEES.
Multiple EPCs for Buildings and Demised Spaces – With regard to multi-let properties, there are many situations where EPCs are registered and valid for both the entire building and demised spaces within a building. In such circumstances, the EPC for the demised space will be the relevant one. Where there is an EPC for the whole building only and the demised space does not require an individual EPC, the certificate for the whole building will be the relevant one.
Listed Building Requirements – It is a popular misconception that all listed buildings do not require an EPC. This is only the case where the character or appearance of the property would be altered by compliance with the energy performance requirements; for example replacement glazing or solar panel installations. It is for the owner of such a property to seek appropriate advice on the requirement for an EPC for the building.
Responsibilities of Landlords and Superior Landlords – It is clear that anyone who lets a building or part of a building on a qualifying lease must comply. There will therefore be occasions where tenants are also landlords. In addition public bodies and local authorities acting as landlords will also be responsible for compliance.
Green Deal Availability – There is minimal reference to the Green Deal in the guidance documentation. However, there is clarification that as the Green Deal funding was never extended to commercial property sector, it is not applicable to comply at this time.
Lease Exclusions – The guidance is clear that leases are exempt if granted for six months or less where the tenant has not been in situ for twelve months or more and there is no provision for renewal beyond six months. In addition leases granted for a term certain of 99 years or more are also exempt.
Validity of EPCs – Where there is no requirement to renew the EPC and the EPC expires during the tenancy, the property will not be required to comply with MEES. This will become of particular interest in 2023 as, if the EPC has expired and there is no legal trigger to renew it, the requirement to comply with the minimum standards will not be applicable as the regulations state that compliance is required where there is a valid EPC in place.
The PRS Exemption Register will open on 1st April 2017 and will be available online for public viewing with non-compliance also being published through the platform.
Melanie Kendall-Reid, Compliance Director at Carbon2018 commented:
“We have facilitated numerous debates with our real estate clients on the requirements of MEES, questioning the areas which lack clarity and challenging requirements that were impractical to comply with or enforce. We provided the Government with evidence-based feedback with practical scenarios and case studies to reinforce the messages. It is really positive to see the Government have listened to the feedback. The result is a guidance document which is not only extensive in its explanations, but also offers landlords the precision to effectively make decisions relating to the development of buildings and future proof the value of their assets.”
The publication of the guidance is welcomed at this time as it enables landlords to take action now to ensure compliance or register any exemptions by the 2018 deadline.