Last edited 13 Mar 2017

Minimum energy efficiency standard (MEES)

Contents

[edit] Introduction

The minimum energy efficiency standard (MEES) is a legal standard developed to improve the energy efficiency of the UK’s older building stock, helping achieve carbon reduction targets for 2020 and 2050. It applies to rented commercial properties.

MEES was introduced by the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015. At the time, the government estimated that 18% of commercial properties hold the lowest EPC ratings of F or G. The Building Regulations ensure new properties conform to current energy efficiency standards, while MEES will focus on the existing stock.

The regulations stipulate that from April 2018, existing tenancies cannot be renewed nor new tenancies granted if the building has less than the minimum energy performance certificate (EPC) rating of E. After April 2023, landlords will not be allowed to let any buildings which have an EPC rating worse than E.

[edit] Buildings and tenancies

Buildings that MEES does not apply to include:

  • Those not required to have an EPC, such as non-residential agricultural buildings, industrial sites and workshops, some listed buildings, temporary properties, and so on.
  • Those where the EPC is more than 10 years old.
  • Tenancies of less than 6 months (with not right of renewal).
  • Tenancies of more than 99 years.

[edit] Penalties

Local Weights and Measures Authorities (LWMAs) will enforce the MEES Regulations, and have the power to impose civil penalties.

If a property is rented out in breach of MEES for less than three months, there will be a penalty of 10% of the property’s rateable value (minimum £5,000, maximum £50,000). For more than three months, the penalty increases to 20% (minimum £10,000, maximum £150,000).

The lease between landlord and tenant remains valid regardless of the property being let in breach of MEES, or a penalty being imposed.

[edit] Exemptions

Landlords will still be able to let buildings to which MEES apply, but which are below the E rating, if certain exemptions apply:

  • The ‘Golden Rule’: An independent assessor judges that improvements made or not made would not pay for themselves through energy savings within 7 years.
  • Devaluation: An independent surveyor judges that improvements would be likely to reduce the property’s market value by more than 5%.
  • Third party consent: A tenant, superior landlord or planning authority has refused consent or given consent with conditions that cannot reasonably be complied with by the landlord.

Exemptions should be registered on the government’s PRS Exemptions Register.

[edit] Who will be affected?

[edit] Landlords

Landlord's primary responsibility is to upgrade non-compliant buildings. Steps landlords can take to prepare might include:

  • Auditing thier property portfolio to identify whether any properties are within the MEES scope.
  • Checking the accuracy of EPC ratings by carrying out energy assessments.
  • Understanding how lease terms, break dates, renewals dates, etc., fit with the timetable of MEES’ implementation.
  • Reviewing leases to understand rights and liabilities.

[edit] Freehold investors

Freehold investors will not be affected by the MEES Regulations where the term of the headlease is more than 99 years. However, they should be aware that there is the chance that the value of any property assets which do not conform to the minimum standard could be negatively impacted. Prospective tenant landlords may be reluctant to take on a sub-let if they will be responsible for implementing costly improvements.

Freehold investors who have tenant landlords in place will, however, benefit from the improvements being paid for by the landlord.

If a property has more than one landlord, the terms of the headlease will be likely to determine which landlord is required to take on the financial burden of making the necessary improvements.

[edit] Developers

Similar issues could affect developers who own freehold assets that are waiting for development. The timetable for future development programmes could be affected by the implementation of the MEES Regulations.

[edit] Lenders

The regulations pose a threat to lenders in the event that a building does not meet the minimum standard, leading to a reduction in the value of their security, as well as their ability to let the property. This could mean that a landlord borrower finds it more difficult to make repayments to the lender due to loss of rental income and additional costs for improving the building’s energy efficiency.

Lenders could also become subject to the MEES Regulations if they take possession of a property following a default, becoming the freehold investors or landlords.

However, the MEES Regulations also provides lenders with the opportunity of lending to landlords who seek to improve their properties accordingly.

[edit] Find out more

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