Get wise with MEES

From April 2023 it became illegal to grant a new letting, or to even continue letting a premises with an Energy Performance Certificate (EPC) of ‘E’ or below. The initial introduction of Minimum Energy Efficiency Standards (MEES) in 2018 marked a significant shift in the UK commercial property sector; and this is due to only become stricter.

These regulations have potential financial and investment implications for property owners. The MEES regulations are due to bite even harder for commercial property with plans to increase the compliant banding from an ‘E’ to ‘C’ by 2027 and to a ‘B’ by 2030.  However, the implementation of the Minimum Energy Performance of Buildings (2) Bill has stalled as it has its scheduled second reading in the commons on 6th May 2022 and has not yet taken place.

This stalling of the second reading may offer some short-term reprieve for Landlords, however, this stay should be used to properly assess the following:

• Do our properties fall within exemptions? There are a few exceptions to the MEES regulations. For instance, they do not apply to licenses, or leases of less than six months or more than 99 years. Or in instances where the cost of compliance is not viable (there’s a cost versus payback test for this). Listed Buildings are also exempt.
• What are our current bandings? Carry out a new EPC assessment as the EPC criteria have changed. You could be pleasantly surprised and an improved banding could be immediate/inexpensive.
• What are the costs of maintaining or achieving compliance? This obviously depends on the current rating, however, some estimates suggest landlord expenditure could be as high as £40psf in addition to the refurbishment costs to upgrade to 2030 compliance
• What happens when works are necessary with a tenant in place? – do the leases allow rights of access to undertake works. And does this create a later issue for landlords when it comes to dilapidations settlement – will tenant use MEES compliance as a ground to dodge dilapidations?

The move in trends in the occupier markets for fitted space, twinned with legislation such as MEES is increasing the burden of costs onto Landlords. As such, owners will need to ensure they are adequately ‘pricing in’ climate risk compliance in order to ensure that they are not stuck with under-performing ‘stranded’ assets in their portfolio.