The writing's on the wall, the windows, the roof and on your boiler. I am talking about the looming energy compliance deadline for Minimum Energy Efficiency Standards (MEES) for both commercial and domestic properties.
The Energy Efficiency in Buildings Regulations 2015 makes it unlawful to issue a lease to a new or existing tenant unless there is an Energy Performance Certificate (EPC) in place with a rating of E or above from 1st April 2018.
Beyond this, there is an additional requirement to secure such an EPC for properties with existing leases by 1st April 2023. This looming deadline is placing pressure on landlords to protect investments.
Within the industry, it has been observed that banks and financiers have been either extremely cautious or even refusing loans for purchase of properties that currently hold EPCs rated at F and G. This will and is impacting upon property values as the Royal Society of Chartered Surveyors (RICS) requires that energy efficiency and sustainability measures are taken into consideration when valuations are calculated.
Although not public knowledge, since 2016, it has been within the rites of tenants to demand more is done to improve a buildings performance.
It is estimated that anywhere between 35-40% of the rented commercial property stock (approximately 400,000 properties) will become unlettable by 2018; landlords must evaluate their portfolios or face significant devaluation of their assets and protect their investors.
Properties most at risk are those built in the 1980s or 1990s with aging air conditioning units and, as is commonly the case, sealed windows. With a lack of natural ventilation and the reliance on grid electricity for heating, cooling and lighting the EPC rating can easily fall into an F or G.
With regards to the whole ‘BREXIT’ issue, this law will still be in place. The current stand point for this legislation, despite its European origins, will be adopted into our UK laws.
Who will be ‘policing this’? Originally thought to be laid at the door of the Trading Standards, they are responsible for checking and enforcing a fine if a property doesn’t have an EPC, Air Conditioning Inspection and Display Energy Certificate (if applicable) in place. I can count on one hand the number of incidents where such penalties occurred. Conveyancing in the UK for lease agreements or property transactions is predominately self-governed. I believe this will also be the case for MEES.
Solicitors, property agents and surveyors will automatically be informing landlords of the risks they face and not having an EPC of an E rating upwards will be standard fare.
There are penalties involved, however MEES fines are avoidable or can be at the very least mitigated.
The way to begin your route to compliance would be to carry out an audit of your portfolio. A simple review of the current ratings or if you are not aware of them then visit the Central Landmark Register and search for your property. Many energy surveyors provide this service free of charge and I would actively encourage this gap analysis. Very quickly a summary of your stock can be made and you can instantly see where you have problem buildings.
Steps to compliance:
Portfolio review – identify properties with no EPCs, review lease renewals.
Identify ‘at risk’ properties – making sure F & G EPCs are accurate – these can be reassessed with marked improvements.
Identify means of retrofitting ‘at risk’ properties to achieve an E rating or better and assess the cost of compliance.
Incorporate energy efficiency improvements into retrofit and PPM schedules.
Update leases, tenant fit out and dilapidation processes to allow for appropriate provisions for the landlord/owner to continue to comply with MEES.
Simple changes to insulation, lighting and heating upgrades are the obvious changes to be incorporated into a property to make the rating grade changes, but it must make a financial case too. The collapse of the Governments Green Deal has limited the opportunities to help landlords, although there are still some organisations available to help self-finance improvement schemes. There are exemptions which can last up to five years before further actions must be taken. This exemption can be sought, but it must be demonstrated that all cost-effective energy efficiency improvements within a seven year payback have been carried out.
Key dates going forward:
April 2020 – All Residential property in existing lease agreements.
April 2023 - All Commercial property in existing lease agreements.
April 2025 - Government wishes to raise standard to a D rating.
April 2030 - Government wishes to raise standard to a C rating.
The introduction of MEES has changed the importance of EPC’s, giving them more meaning and ensuring greater quality and strategy to maximise the energy ratings and hopefully protect both tenant and landlord.