Minimum Energy Efficiency Standard
Arising from a commitment under the Energy Act 2011, The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 received parliamentary approval at the end of March 2015. At the core of the Regulations is the Minimum Energy Efficiency Standard (MEES) whereby with effect from 1 April 2018 it is unlawful to let domestic and non-domestic private rented sector properties that do not meet the minimum standard of an EPC ‘E’ rating, as summarised below.
There may be sound commercial reasons to improve a property's EPC rating above the minimum standard. Firstly in terms of risk management, an existing ‘E’ rating could worsen when the property is re-certified at the expiry of its 10 year EPC validity period, and/or there is the possibility that the Government could raise the minimum standard to a 'D' rating in the future. Secondly, the additional cost of improving the rating to ‘D’ (or better) instead of ‘E’ may be relatively marginal, whereas the return on investment in terms of additional energy cost saving could be substantially higher, resulting in a compelling business case and an opportunity to protect asset value in the event that demand shifts in favour of properties with better ratings. Combining energy efficiency measures with cyclical refurbishment and planned maintenance could enhance the business case and reduce occupier disruption.
Scope – domestic
The Regulations apply to the domestic private rented sector in England and Wales. This is defined in Section 42 of the Energy Act 2011 as, "properties let under an assured tenancy [including an AST] for the purposes of the Housing Act 1988, or a tenancy which is a regulated tenancy for the purposes of the Rent Act 1977".
Scope – non-domestic
The Regulations apply to non-domestic private rented sector properties in England and Wales that require an EPC, but exclude leases for terms of less than six months or more than 99 years.
Domestic – energy efficiency improvements for which funding is not available to cover the full cost of purchasing and installing the improvements from one or more of the following sources: a Green Deal Plan, an Energy Company Obligation or central government, local authority or third party grant (at no cost to Landlord).
Non-domestic – energy efficiency improvements that are not cost-effective within a 7 year payback period.
Where a landlord has made all the relevant energy efficiency improvements to the property that can be made (subject to the above exemptions), and the property remains sub-standard.
A relevant suitably qualified expert provides written advice that:
measures will reduce the property value by ≥ 5% (only measures expected to cause devaluation are exempt) or
wall insulation, if required, will damage the fabric or structure of the property.
When do the Regulations apply?
From 1 April 2018 – upon the granting of a new lease and the renewal of a lease.
From 1 April 2020 – all privately rented domestic property within scope, including where a lease is already in place and the property is occupied by a tenant.
From 1 April 2023 – all privately rented non-domestic property within scope, including where a lease is already in place and the property is occupied by a tenant.