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The increasing urgency with which we are moving towards a net-zero society has had wide-ranging implications, not least within the property industry. The Minimum Energy Efficiency Standards (MEES) regulations, introduced in 2015, are an excellent example of how we will have to deal with these changing standards as we move into the future. Introduced in order to target the least energy efficient buildings, MEES currently prevents private properties from being let to new or existing tenants if the property has an Energy Performance Certificate (EPC) rating of F or G, the two lowest ratings. To help enforce this there are fines for non-compliance, which currently range from £5,000 – £150,000.
As alluded to however, the MEES regulations are set to become more strict throughout the 2020s – but what are these changes going to be? The most immediate is that by April 1st 2023 it will become unlawful for landlords to continue leasing non-domestic properties if they have an EPC rating of F or G, even without a change in tenant – this is already the case for domestic properties. Following on from their announcement in the 2020 Energy White Paper that the MEES regulations will be changing to aim for a minimum EPC of B by 2030, the government have consulted on the framework for the implementation of this target. While the response to this consultation is expected later this year, it seems likely that the following changes will be implemented.
The first of these changes is a phased implementation of the EPC B target for 2030, with an interim EPC C required by 2027. These targets are coupled to two-year compliance windows – April 1st 2025 – March 31st 2027 for EPC C and April 1st 2028 – 31st March 2030 for EPC B. Landlords will be required to present a valid EPC at the start of each compliance window, with a follow-up EPC by the end of each window. The second EPC should show that landlords have either reached the minimum EPC required by the MEES regulations or registered an exemption. These exemptions will be reconsidered at the start of each compliance window. Both EPCs and exemptions are to be stored on the new PRS Exemptions and Compliance Database. While the compliance windows allow a landlord to take a phased approach to improvements, the government are keen to stress that a two-step process is not required and that landlords are encouraged to undertake the whole process in a manner that is as cost-effective and non-disruptive as possible.
If this does not sound daunting enough already, the government are planning to change the way that EPC ratings are calculated. Changes to the emissions factors used to calculate performance coupled with new minimum standards for ventilation and thermal efficiency are expected to take place this year, meaning that some properties may see a worsening of their EPC rating without any changes being made to the building.
As always, there are exemptions – for example if changes to the building to improve its EPC rating would decrease the value of the property by more than 5%, or if an individual has suddenly become a new landlord (this itself is subject to specific criteria). While the consultation proposes that all buildings (including listed buildings) should require an EPC, it does also propose a new exemption for listed buildings – for example if the fabric of the building is at risk or changes were unacceptable to the planning authority. Landlords are also not expected to carry out improvements where the cost would not be recoupable within a seven-year payback period – the process of calculating this will be eased by the introduction of a payback calculator. There is one final proposed exemption relating to shell and core properties – landlords previously were making improvements to meet the MEES threshold that tenants were then removing. The consultation suggests a 6-month exemption for these properties in order for improvements to be made after letting in consultation with the tenant.
If you are a company (see below) who will be affected by these changes going forward, know that you are not alone – it is estimated that over the last 10 years only 12% of all registered non-domestic EPCs were rated B or above. This is not a trend that has shown any signs of changing in more recent years either, with only 15% of the roughly 91,000 non-domestic EPCs registered in 2019 meeting the same criteria. Looking at these figures in reverse means that 88% of non-domestic properties will be required to improve their energy performance by the end of the decade – equating to over half a million individual assets.
If all this talk of regulations and changing criteria has already left your head in a spin, just remember that MEES is only one example of the many regulations that will be put in place across all sectors to help achieve the UK’s goal of net-zero by 2030. But fear not!
The Inteb team are on hand to help – give us a call today to see if we can help you wade through the sea of endless acronyms on your own journey towards net-zero.
Who will this affect most?
Landlords
Investors
Developers
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