In 2019, the government first consulted on amending the non-domestic MEES Regulations to raise the minimum standard from the current rating of Energy Performance Certificate (EPC) "E" to either "B" or "C" by 2030. There was significant support for increasing that minimum standard to EPC B in 2030, but how to get there and how to make the system work as intended? On 17 March 2021, a further consultation was published that focusses on, and responds to, concerns and challenges around compliance and enforcement in a higher minimum standard world and also considers the possibility of an interim milestone. A copy of the consultation can be found here.
What are the current proposals?
The government is proposing to raise the minimum standard to EPC C in 2027 to encourage incremental improvements, rather than seeing a last minute rush to reach the B standard by 2030. To deal with the issue of enforcement, the government proposes that each change should be preceded by a two-year ‘compliance window’. The compliance window will begin with landlords having to present a valid EPC for their let properties to a central register, which will then identify the properties that are substandard and in need of improvement.
This marks a crucial change of approach, as until now landlords have not been required to present a valid EPC to be checked. It has been left to the enforcement authorities to identify for themselves the properties to which MEES applies and the current EPC rating. This is not straightforward and is resource intensive for the enforcement authorities resulting in little enforcement of MEES to date.
Assuming that the proposals described in the consultation are implemented, a summary of the timeline of events along with flowcharts showing the enforcement points up until 2030 are as follows:
(a) from now until 30 March 2023: properties let with an EPC below E and no valid exemption are subject to enforcement risk (no change to the current regime);
(b) 1 April 2023 to 30 March 2025: properties continuing to be let with an EPC below E and no valid exemption are subject to enforcement risk (no change to the current regime));
(c) By 1 April 2025: all rented properties to be registered and have a valid EPC (this effectively increases the risk of enforcement under (b));
(d) From 1 April 2027: all rented properties to meet a minimum of EPC C or have a valid exemption registered; and
(e) By 1 April 2028: EPCs to be checked (renewed if possible) for rented properties – this identifies properties which will need further improvements; and
(f) From 1 April 2030: all rented properties to meet a minimum of EPC B or have a valid exemption registered.
Flowchart of timeline
Closing the gaps
In order to make this system work, all let commercial properties will need to have a valid EPC at all times going forward. Currently, once an EPC expires after ten years, a new, valid EPC is only required on a sale or when a new lease is granted, but the government proposes that it would become compulsory to renew the EPC on its expiry, and also to update the EPC after works are done. This makes sense given that for MEES to be enforceable there must be an EPC, as without a valid EPC there is no rating to be checked for compliance.
The government also intends to address the current confusion over heritage buildings by clarifying that all let buildings, whether or not they are listed or in a conservation area, must have a valid EPC. Whether or not works can be done to improve them then becomes a question for, ultimately, the planning regime. Where planning consent is needed and cannot be obtained then an exemption would continue to be available.
The government also want to resolve the MEES challenges on lettings of shell and core space. These challenges arise because MEES does not allow landlords to let properties with an EPC rating of less than E, which is often the case with shell and core space. This is because several elements that affect the EPC rating will be installed by the tenant after the lease is granted, but without their presence, the energy assessors make several adverse assumptions that affect the EPC rating. To address this, the government has proposed that MEES would no longer be enforceable at the point of letting and instead, landlords would have six months after granting the lease before enforcement can take place. This will give tenants time to fit-out and bring the property up to standard and enable the landlord to legally grant a lease of the property to the tenant in its shell condition.
This does of course leave open the question of what happens if the tenant’s fit out does not result in the property coming up to the relevant standard, for which the government potentially has another answer. Currently the MEES obligations apply to landlords, however under the new proposals the government, recognising the role of fit-out on EPC ratings, may impose some MEES obligations on tenants. This means tenants should consider MEES beyond just the effect on their ability to sell or underlet the lease. That said, there is no detail on how obligations will be imposed on tenants nor what this might look like in practice.
Another proposal to improve enforcement is to tighten the law on marketing properties so that online property platforms, as well as agents, must refuse to market properties without a valid and compliant EPC. Legislation placing requirements on letting agents is currently in place, but the position on online property platforms is less clear. The government wants to close this gap and ensure letting agents and online property platforms only advertise and let properties that are compliant with the MEES Regulations.
Overall, the policy objectives are sound and the new proposals attempt to clarify some of the previous confusions in relation to MEES such as the position of heritage buildings. Further, the proposals seek to make compliance and enforcement easier and simpler for both local authorities (through the ‘compliance windows' and proposals to permit local authorities to use EPC Open Data for MEES enforcement) and for landlords (though the introduction of a simple standardised and user friendly calculator for the 7 year payback exemption).
It's not all over yet
This consultation is one of several that are currently live in the energy arena. The government is also consulting on a system for measuring and comparing the "in use" environmental performance of large (over 1,000m2) commercial buildings, using an adapted version of display energy certificates to create a scale based on the NABERS scheme that has been so successful in Australia (and was recently launched in the UK by the Better Buildings Partnership). And finally, a third consultation has been issued on mandatory non-financial reporting for large businesses. We strongly encourage interested parties to respond to these consultations; responses to the MEES consultation are due by 9 June 2021.
To find out more about MEES or energy performance in real estate, or for a no obligations discussion, contact Simon Keen.
Authored by Simon Keen and Megan Stewart.