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Latest News

Minimum Energy Efficiency Standards... Ready or Not?

26th April 2017

Categories: Latest News

As TDA Estates Manager, an issue for me that is focusing my attention is that in less than 12 months the Minimum Energy Efficiency Standards (MEES) will come into force.

In short, from the 1 April 2018 landlords of commercial property will be prohibited from granting new leases of property with an Energy Performance Certificate (EPC) rating of either F or G.

EPC's for commercial property first came into being in 2008.  This applied at the time for properties larger than 50m², with fixed services for conditioning the interiors.  Since that time, the technology and assessment has increased significantly.  As a consequence, it is well documented that the efficiency requirements of buildings has also increased. This is reflected in the many revisions to the Building Regulations. 

I have found and experienced that an EPC rating assessed in 2010 or 2011 is likely to be possibly up to 2 ratings down if assessed today.  An EPC is valid for 10 years if the assessed property remains largely the same.  However, as a landlord it is important to assess the risks not only looking at properties with an EPC rating of F or G, but also those properties with a current rating of E and possibly D, that may require a re-assessment before April 2018.  This is an exercise I have been undertaking over the last few months.

There are a number of exemptions and exclusions on properties where MEES will not apply. A starting point to the exercise I have undertaken was to review these in the first instant. Potential exemptions led to reviewing all leases granted for a period of less than 6 months and longer than 99 years, properties where no heating or air conditioning is present and buildings which has a floor area smaller than 50m².

Other exemptions that may be considered going forward include assessing the impact of any proposed measures and whether this would de-value the property by more than 5%. I think a key exemption that many landlords may rely upon will be the seven year payback test. This states that if the cost of introducing energy efficiency measures is not cost effective within a seven year period then the property may be deemed exempt. Any exemptions need to be registered before 1st April 2018 to apply.

I think possibly the main impact of MEES and properties falling within rating of F and G, and to a lesser extent E and D, could be a shift in the bargaining position between a landlord and tenant.  The impact of this will depend very much on the type of property, income generated and what lease event is being considered.

I am aware some of my peers have commissioned complete overview of all EPC assessments across portfolios. I don't think this is actually necessary where a property could still be let for a considerable period of time beyond April 2018. However, I do believe that it is important to consider the properties that might fall under MEES now and also begin to think about how landlords and tenants may protect themselves going forward when drafting new leases.

In February 2017, the government published guidance for the implementation of MEES.  However this is still only guidance, with more detail to follow.  TDA is able to provide advice and support on the impact of MEES and what measures one should be undertaking now.

Paul Palmer is the TDA Estates Manager and can be contacted on paul.palmer@tedcltd.com

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