1st April 2023 heralds a change in the application of minimum energy efficiency standards (MEES) to commercial property in England and Wales.
From this date, landlords of commercial property will be prohibited from continuing to let properties (whenever the lease was first entered into) with an energy performance certificate (EPC) rating of either ‘F’ or ‘G’ unless certain exemptions apply. MEES has already applied to the grant of new leases or the renewal or extension of existing leases since 1 April 2018. The changes will automatically apply to catch all existing leases, even where there has been no tenancy renewal, extension or new lease granted.
This means that landlords of commercial properties must ensure that from 1 April 2023 their properties have a minimum EPC rating of E, unless a valid exemption applies and has been registered on the central exemptions register. Landlords should also check to ascertain if EPC ratings for properties have fallen below ‘E’ since the lease was granted.
Holding over by a tenant after the expiry of the contractual term under the Landlord and Tenant Act 1954 is also deemed to be “continuing to let” and therefore MEES is applicable. Tenants also need to be aware that they are a landlord for the purposes of MEES in relation to any sublettings which they have created.
Where a property is let (or continues to be let) in breach of MEES, the lease remains valid and in force, but the landlord will be in breach of MEES and potential penalties could apply, unless an exemption applies. It should be noted that the breach of the standards could well be a breach of headlease covenants if the landlord’s property is leasehold. A breach may also be an event of default under finance documents where the property is charged.
The same exemptions as were available previously still apply from 1 April, so that, for example, landlords only have to carry out cost-effective works and are not required to achieve the minimum acceptable rating by any means. The maximum fine also remains the same at £150,000
Leases which are excluded from MEES include those for a term of 99 years or more, and those granted for a term not exceeding 6 months, unless the lease contains an option to renew it beyond 6 months or, at the time it is granted, the tenant has been in occupation for a continuous period of more than 12 months.
MEES obligations are anticipated to become stricter over the next few years with the Government consulting on proposals for requirements of a minimum EPC rating of “C” in 2027 and “B” in 2030. However, there has been no substantial Government response on this since the consultation was published so although future changes are expected the details and timings are not yet known. Changes to MEES in relation to residential leases are also expected.
Please get in touch with Michele Salter, or any other member of the Commercial Real Estate team to discuss this matter, or any other commercial real estate requirements.
This article is for general purpose and guidance only and does not constitute legal advice. Specific legal advice should be taken before acting on any of the topics covered. No part of this article may be used, reproduced, stored or transmitted in any form, or by any means without the prior permission of Brecher LLP.
