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It is now more than eighteen months since MEES came into force setting out the minimum level of energy efficiency for both commercial and residential privately rented property in England and Wales. Since 1 April 2018, landlords have not been able to rent out commercial properties with an EPC rating below E unless improvement works are carried out or an exemption can be claimed and registered. From 2023 these rules will also apply to all existing leases of non-domestic properties.
Find out more about the MEES regulations: which premises are caught; exemptions; sanctions and enforcement and the impact on landlords, tenants and lenders.
Despite lack of enforcement by Local Authorities, evidence suggests that the regulations do seem to have had a substantial impact on new EPC registrations where ratings have significantly improved: A-rated certificates have increased from pre-MEES levels and there has been a steady fall in the percentage of F and G-rated certificates (from 10% in 2017 to 5% in 2018). London has seen the greatest decrease in these low-rated certificates. All of this is of course good news for the Government in delivering energy savings to support its commitment to bring all greenhouse gas emissions to net zero by 2050. But F and G rated buildings only account for 20% of non-domestic premises in the UK so there is certainly scope for further improvements in energy savings. So…what does the future hold for MEES and what do landlords and investors of commercial premises need to be aware of?
The Consultation Paper was published on 15 October 2019 and puts forward two options for tightening MEES standards for commercial properties:
Existing exemptions will continue to apply including the seven-year payback test whereby a landlord may still let the premises if the recommended energy improvements do not pay for themselves in energy savings over a seven-year period.
A key focus of the Consultation Paper is how these changes should be introduced and whether this should be on an incremental basis with one or more phased increases in the 2020s or a single increase in 2030. Key advantages and disadvantages of a single jump from E to B or C are outlined in the Consultation:
The Consultation also seeks views on how enforcement of MEES can be improved and the additional enforcement requirements by local authorities.
Whilst the stated policy objective of businesses reducing their energy use by at least 20% by 2030 is to be applauded, it remains to be seen whether this is achievable and whether these proposals will turn the screws on landlords too quickly and too tightly. Time-limited exemptions such as the payback test are likely to gain in importance and it will be interesting to see how many of these and other exemptions are being registered in the run-up to 2030.
UK Real Estate Horizon Scanning 2020
Explore further topics across our UK Real Estate Horizon Scanning 2020 publication.