Preparing for the MEES
Recent research from the Property Directors Forum found 88% of their members have invested in the sustainability of their buildings over the last year. 38% of their members said they have seen building and energy costs reduce as a result.
Buildings are a major contributor to greenhouse gas emissions and a natural focus for the government to meet its carbon reduction targets. So, investing in building sustainability is increasingly to mitigate new regulations, which is why half of their members intend to invest more over the next year.
While Building Regulations ensure that new properties meet current energy efficiency standards, the government is adding teeth to the regulations for existing buildings with the introduction of a new legal standard for minimum energy efficiency called the minimum energy efficiency standard (MEES).
Ten years on from the introduction of Energy Performance Certificates (EPCs), the government has legislated that from April 2018, landlords will not be able to renew existing tenancies or grant new tenancies if the building has less than the minimum energy performance certificate (EPC) rating of E. The rule will be extended to existing tenancies by April 2020 and from April 2023, landlords must not continue to let any buildings which have an EPC rating of less than E.
The impact, especially for landlords in the private residential sector will be widespread. The government estimates almost 1 in 5 commercially owned dwellings are in the lowest energy performance bracket. That’s around 330,000 privately rented homes are rated F and G. The primary reason for this is the 34% of rented homes were built before 1919 prior to the introduction of cavity walls, meaning they are hard to insulate.
Neglect is also an issue. Properties that were allowed to fall into disrepair by owner-occupiers, who maintained neither the home itself or the boiler, have been prime targets for landlords looking to maximise their rent yields.
MEES exclusions include
- Buildings which are not required to have an EPC: such as industrial sites, workshops, non-residential agricultural buildings with a low energy demand, certain listed buildings, temporary properties and holidays lets;
- Buildings where the EPC is over 10 years old or where there is no EPC;
- Tenancies of less than 6 months (with no right of renewal);
- Tenancies of over 99 years.
The most obvious threat to landlords is the financial cost of upgrading non-compliant buildings and the potential loss of income if a property cannot be rented out. The new regulations will be enforced by Local Authorities with powers to impose penalties according to the property's rateable value.
The penalty for renting out a property for a period of fewer than three months in breach of the MEES Regulations will be equivalent to 10% of the property’s rateable value, subject to a minimum penalty of £5,000 and a maximum of £50,000.
The penalty rises to 20% of the rateable value after three months, with a minimum penalty of £10,000 and a maximum of £150,000.
The lease between the landlord and the tenant remains valid and in force, even if the property is in breach of the MEES Regulations or where a penalty is imposed.
You should start preparing for the new regulations now; auditing your portfolio to understand which properties are within scope of the MEES Regulations. Check the EPC ratings are correct and review how lease terms, break dates, renewals dates and planned refit periods fit with the MEES timetable.
Property Director Forum members manage over 60,000 properties and have combined annual revenue of over £600 bn. You can see an infographic of the Property Director Forums research by clicking here >>