The minimum energy efficiency standards (MEES) regulations have changed with effect from 1 April 2023, such that the current prohibition on new lettings of sub-standard, non-domestic properties now extends to the continuation of any existing lease of a sub-standard, non-domestic property.

On the face of it, this change in the regulations appears simple with any continuing underlease of a non-domestic property with an Energy Performance Certificate (EPC) rating of below an E being prohibited in England and Wales and the landlord being liable for civil penalties if this prohibition is not complied with.

However, the update is not that simple. The MEES regime, and the way it interacts with existing EPC requirements, can be complex and extending the requirement to cover existing leases gives rise to additional considerations for landlords to ensure compliance. Where compliance must be assessed across a large portfolio, this is not necessarily a one-size-fits-all approach. We have flagged below some of the pitfalls and exemptions to the MEES regulations that landlords should bear in mind when assessing how MEES applies to properties in their portfolio and developing an approach to compliance.

Nuances to the MEES regulations

1. Is the property in scope – not all properties fall within the scope of MEES. The property must be:

1. a building – meaning it must be a roofed construction having walls for which energy is used to condition the indoor climate; and
2. it must have a valid EPC – the property must have had an EPC commissioned in the last 10 years. Accordingly, this leads to questions as to whether such properties are captured by MEES where an EPC has expired or no EPC has been obtained at all.

2. Is the property sub-standard – on a basic level, if a property has a valid EPC with a rating of F or G, the property is sub-standard, however, a property with an EPC rating of F or G that is not subject to any relevant energy efficiency improvements (EEIs) or all relevant EEIs have been completed may continue to be let. A relevant EEI is an improvement which:

1. has been recommended for the property in a recommendation report of a surveyor’s report;
2. is of a type specified in MEES; and
3. satisfies the seven-year payback test.

3. Exemptions – the following exemptions may apply to a sub-standard property:

1. Devaluation exemption – a landlord is not required to undertake a relevant EEI which would reduce the market value of a property by more than 5%;
2. New landlord exemption – there is a six-month exemption period for new landlords of a sub-standard property where they have become the landlord by purchasing the interest and on the date of the purchase, the property was subject to an existing tenancy;
3. Consent exemption – the property is exempt where the landlord is unable to increase the energy efficiency of a sub-standard property because:

1. tenant consent is required and has been refused; or
2. third party consent is required and has been refused.

Please note that all exemptions must be registered on the PRS Exemption Register and do not automatically apply. They are also time-limited, such that landlords benefitting from an exemption will need to regularly review their compliance.

Further changes to the MEES regulations to be expected

In 2021, the government issued a consultation on future updates to the MEES regime, which foresees raising the minimum energy efficiency standards for let buildings being increased to C by 2027 and to B by 2030. Whilst details of the implementation of these proposals are not yet available, raising the minimum standards is likely to have a significant impact on MEES compliance for many commercial landlords, who may need to further improve the energy performance of their properties. Landlords should bear this future trajectory in mind and stay alert to the introduction of these proposals.