26/04/18
After the first month of Minimum Energy Efficiency Standards (MEES) implementation, we’ve found the end of the world is not nigh! With some practical advice and limited expense, our clients have dealt with inadequate Energy Performance Certificate (EPC) ratings on their properties.

Lettings are now in hand and the new tenants will benefit from energy savings.


The implementation of MEES created some concerns and deliberation in the property industry. It was thought that some owners may be left with unlettable buildings, or major expenses for upgrading their premises. From 1st April this year, the MEES rules have meant that it is not generally legal to let commercial properties with an EPC rating less than A-E. It seemed much older stock, or other inefficient buildings, would stand empty unless improvements were made. This may not be the case.

We are dealing with a 2,800 sq ft industrial unit in central London, where a Lease Expiry was under discussion. Our provisional advice showed an EPC Rating of F. As there was no valid Certificate on the property, the MEES rules did not apply and we would have been free to complete the Lease Renewal. However, there was some initial fear that major investment would be required if the tenant left. This may have had an impact on the negotiating position of the Landlord – seeking a more modest rent to ensure the existing tenant renewed. However, our advice indicated that limited improvements to lighting could be made to upgrade energy efficiency and a conservative approach was not necessary. For business reasons, the tenant has chosen to vacate and with their co-operation, limited upgrading works have been carried out on behalf of the Landlord. At a cost of only £325 the EPC Rating was increased to Band E and a re-letting is now in hand.

An office unit in Barnet had an historic EPC Rating of F. A letting fell through in March and it appeared the premises could not now be let. Improvements have been carried out to lighting to gain a new EPC Rating of D and solicitors are instructed to let the property to a new business.

There is a school of thought that the MEES rules may change in the future to set the bar a little higher by requiring a Band D rating for new lettings. The work on the Barnet office has future proofed the property in this respect. If a Band D rating is required for the industrial unit we anticipate that only limited further expenditure will be required.

For further practical guidance on asset management and MEES, please email info@dayandbell.co.uk and we can endeavour to assist.


10/04/18
RICS has published some incredibly helpful guidance on the impact of Minimum Energy Efficiency Standards (MEES), which come into force on 1st April. This is their introduction:

“This insight paper provides an introduction to MEES and the potential impact of the regulations on UK property management and valuation. The scope and various exemptions of MEES for non-domestic and domestic properties is also discussed as well as advice for landlords.”

Previous guidance has been a little contradictory and practical advice from RICS helps deal with the implications of Energy Performance Certificate (EPC) and MEES rules. Some particular highlights of the paper are

1. NO NEED TO OBTAIN AN EPC ON LEASE RENEWALS
“Buildings that have yet to require an EPC under the original Energy Performance in Buildings Directive (EPBD) because they have not been marketed for sale or for a letting since April 2007 will also be out of scope until the time that an EPC is required.”

This means the MEES requirements to obtain an EPC and hold a Rating of A-E doesn’t apply to renewals of tenancies on properties that have never required an EPC. This is an important issue in considering lease expiry options at the end of long term tenancies.

2. CONTINUING LEASES
Continuing Domestic lettings will be required to comply with MEES (A-E EPC Rating) by April 2020 and continuing Non-Domestic lettings must comply by April 2023. When a property has not been required to hold an EPC, a further reprieve is found. The impact on residential letting is currently under consultation and the impact on the Buy-to-Let Market may be significant. Further consideration needs to be given to all commercial lettings.

3. EPC OBLIGATIONS
EPCs are valid for 10 years. As older EPCs (2008-2010) were often less stringent, there is a strong prospect that an E Rated property would now achieve a non-compliant F Rating. It is noted that there is no need to update the EPC unless a new letting or sale (See Definition) takes place. It follows that updated EPCs may not be required on lease renewal, although this doesn’t appear certain.

4. NO SCOPE FOR MEES ON SALES AND ASSIGNMENT
“Importantly, the regulations do not prevent the sale of buildings and do not affect the assignment of an existing lease…”

An EPC is required for a sale or lease assignment, but the Rating does not need to be within Band A-E for the transaction to take place. If an assigned Lease (after April 2007) is then renewed, then a Band A-E Rating will be required. There may be some interesting options arising from this issue.

Please obtain specific advice on your individual property before acting on these notes and we encourage you to read the RICS Insight paper:

http://www.rics.org/Global/MEES_impact_UK_property_insight_March_2018mr.pdf

Government guidance on EPCs is also helpful, especially:

“Transactions not considered to be a sale or rent
The purpose of providing an EPC during the sale or renting process is to enable potential buyers or tenants to consider the energy performance of a building as part of their investment. Not all transactions will be considered to be a sale or let to which the duties apply. These will include:
  • lease renewals or extensions
  • compulsory purchase orders
  • sales of shares in a company, which does not involve the sale of the building in which that company is located, where buildings remain in company ownership
  • lease surrenders
There may be other types of transaction that it might be argued do not require an EPC, for example, living accommodation at a workplace and tied to a job, or not-for-value transactions, but this will depend on the individual circumstances of any case.”

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/666186/A_guide_to_energy_performance_certificates_for_the_construction_sale_and_let_of_non-dwellings.pdf