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Minimum Energy Efficiency Standards for Residential Landlords

The Minimum Energy Efficiency Standards (MEES) set out a minimum level of energy efficiency for private rented property in England and Wales. A residential property will be deemed “sub-standard” for the purpose of MEES if it has an Energy Performance Certificate (EPC) rating of below E.

Key dates and provisions

To date, the EPC rating for a property has served as a useful indicator of environmental efficiency. However, come the introduction of MEES in April 2018, the EPC rating for a property will take on additional and increased significance:

From 1 April 2018: It will be an offence to grant, extend or renew a lease of a residential property with an EPC rating of below E.

From 1 April 2020: It will be an offence to continue to let a residential property with an EPC rating of below E. This is a full three years before similar provisions will apply to commercial property.

Limited exceptions and exemptions will apply and are outlined below.

Residential lettings within MEES

MEES will apply to “domestic private rented property” defined to include properties let under an assured tenancy (including an assured shorthold tenancy) (AST), regulated tenancy and certain forms of agricultural tenancy but excluding lettings by social landlords.

Whilst a large number of residential lettings will be let as ASTs, and therefore fall within the scope of MEES, it should be noted that, in order for a tenancy to be an AST, it must satisfy each of the following criteria:

  • The rent must be more than £250pa (or £1,000pa if within London) and less than £100,000pa.
  • The tenant must be an individual or individuals (not a company) and the tenant must use the property as its only or principal residence.

Lettings of residential property to corporate tenants, and lettings that do not fall within the rental thresholds outlined above are not, therefore, capable of being an AST and MEES will not apply to such lettings. 

Unlike the regulations for commercial property, there is no upper or lower limit on the length of term for which MEES will apply to residential leases. Accordingly, MEES may apply to residential leases granted on payment of a premium and for a significant term provided the criteria for an AST outlined above is met. It is also possible for a letting to fall in and out of AST status depending on the rent payable and the nature of occupation by the tenant.

Residential lettings outside of MEES

A limited number of residential transactions including temporary buildings and holiday lets do not require an EPC and are therefore excluded from MEES. The position regarding the application of MEES to listed buildings currently remains unclear.

Multi-let and mixed use properties

Residential lettings within a multi-let or mixed use scheme may present particular problems, as there may be multiple EPCs covering parts of the building providing varying EPC ratings.  In this situation it will be necessary to identify the correct EPC for the property that is to be let to the residential tenant.  A letting of a self-contained flat will usually have its own EPC and therefore fall within the residential MEES regime (assuming it is let on an AST) whereas a single letting of the whole of a block of residential flats will usually fall within the commercial MEES regime.

Exemptions

It may not be practical or possible for the environmental performance of a substandard residential property to be improved and it may be possible to claim an exemption from MEES in the following circumstances:

Relevant improvements exemption: Where all relevant improvements (i.e. those listed in the EPC or recommended by a survey or Green Deal report) have been made and the property remains substandard or there are no such relevant improvements that can be made.

No cost exemption: Where the landlord is unable to obtain “no cost” funding for relevant energy efficiency works via the Green Deal or other appropriate scheme.

Devaluation exemption: Where the relevant energy efficiency improvements would decrease the market value of the property by more than 5%.

Consent exemption: Where the landlord requires the consent of a third party (such as a superior landlord, mortgagee, planning authority or a tenant) to access the property and undertake energy efficiency improvements and such consent cannot be obtained despite the landlord’s reasonable efforts to obtain it.

New landlord exemption: Where a landlord is required to grant a new lease of a sub-standard property pursuant to an agreement for lease, or court order.

No cost exemption

In contrast to the regulations that apply to commercial properties, energy efficiency improvements for residential properties will only be “relevant” if the improvements can be undertaken at “no cost” to the landlord, for example using Green Deal finance.

Green Deal will enable landlords to undertake and fund improvement works with the cost of the works being repaid in instalments added to the energy bill for the property.

The Green Deal payments will be secured by a Green Deal Charge that will attach to the property. Green Deal will only be available where the first year’s repayment does not exceed the estimated first year saving and the overall repayment period does not exceed the lifetime of the improvement measures (known as the “Golden Rule”).

Consultation issued in December 2017 has raised the possibility of replacing the “no cost” exemption with a “capped landlord financial contribution” anticipated to be in the region of £2,500 per property.

Registration and validity of exemptions

All exemptions must be applied for and registered on the PRS Exemption Register. With the exception of the new landlord exemption (which applies for 6 months) exemptions will apply for 5 years after which the landlord will be required to improve the EPC rating or apply for and register a further exemption.

Exemptions will not pass to a new owner on the sale of the property. If a let property with a sub-standard EPC rating is sold with an exemption in place, the new owner will need to improve the EPC rating or register its own new exemption within 6 months of the purchase.

Potential penalties

New leases of residential property granted or continued to be let in breach of MEES will remain valid.  However, landlords that let residential properties in breach of MEES may face a “publication penalty” and a fine of up to £5,000 per property per breach.

Assessing the potential impact of MEES

Landlords should ascertain which residential properties, if any, within their portfolio have an EPC rating of less than E and are let or intended to be let on a tenancy that would fall within the scope of MEES. Steps should be taken now to assess the works that may be needed to ensure that new lettings can be lawfully granted after April 2018 and that any existing lettings can continue beyond 2020 in compliance with MEES.

 

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DX 53 Chancery Lane

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