Beginning on April 1st 2023, Minimum Energy Efficiency Standards (MEES) will be extended with regard to commercial tenancies.

This means that in addition to the granting of a new tenancy the landlord must ensure that it has an Energy Performance Certificate (EPC) rating of at least an E for existing and continuing tenancies.

Alternatively the landlord must make energy improvements so the property is no longer substandard, unless there is a valid reason for failing to do so.

Should a landlord fail to comply with these requirements, he can be fined up to £150,000, depending on the type of property and the extent of the breach.

Clearly, commercial landlords should act now to obtain an EPC where required before April 1st 2023.

The MEES applies to property that is required to have an EPC, is defined as ‘non-domestic private rented property’ located in England or Wales, and is let under a ‘qualifying tenancy’. (Exceptions can be made for short tenancies, licence arrangements and ‘long’ tenancies of 99 years or more.)

Properties which may not need an EPC include listed buildings, those in conservation areas, or buildings due for demolition.

When is a property substandard?

Commercial properties which are considered substandard and must have an EPC are those with a rating of F or G.

As the minimum rating will most likely be adjusted again from 1 April 2027, when properties will need a minimum EPC rating of C, landlords instructing EPC work would be wise to consider raising the rating from an E to a D or better where viable.

Possible exemptions for substandard properties.

Exemptions may be made to allow landlords to continue letting a substandard property if there is a valid reason, but this must have been registered on the Private Rented Sector (PRS) Exemptions Register.

Landlords are advised to seek specialist advice on what constitutes a valid exemption as the rules are complex. Exemptions include:

Cost-effective improvements. Where all cost-effective energy efficiency improvements have been carried out (or there are none that can be made) and the property remains substandard. (Cost-effective improvements should pay for themselves within seven years to meet MEES regulations.)

Devaluation. Where an independent surveyor states that making energy efficiency improvements would reduce a property’s value by more than 5%.

Tenant consent is withheld. Where the tenant or a third-party refuses access or consent to the energy efficiency improvements. (Whether a landlord can invoke rights of access under the lease to carry out EPC related works will depend on the drafting of the lease terms.) 

How landlords can prepare for the new Minimum Energy Efficiency Standards.

Consider an EPC audit across the portfolio to identify EPC gaps and deficiencies, and commission EPCs where there are gaps.

Commission EPC plus reports where there are rating deficiencies to gauge the possible costs involved and work required.

Seek specialist advice regarding exemption details.

Review leases and establish if EPC upgrade costs can be passed through to tenants via service charge or otherwise.

Determine that a tenant’s fitting out proposals and alterations will not adversely affect a property’s EPC rating.