The Minimum Energy Efficiency Standard ("MEES") came into force in England and Wales on 1 April 2018 by virtue of the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015. MEES applies to both residential and commercial property and it is aimed at pushing landlords and owners to improve energy efficiency in their properties. It is now unlawful to grant or continue a tenancy where a property has an Energy Performance Certificate ("EPC") rating of "F" or "G", unless a limited exemption applies and has been successfully registered.
Prior to April 2018, the standard-practice for landlords was not to provide EPCs on lease renewals. Justification seemed to be that an EPC was provided to allow a new tenant to consider the energy performance of the property as part of its wider investment in a new tenancy. Where a tenant was already in occupation, the EPC became seemingly superfluous. That practice has now markedly changed as a result of MEES.
Landlords therefore now need to provide EPCs on new leases and all lease renewals, which may have the surprising result of some EPC ratings falling below "E". A landlord would then have two choices: (i) carry out improvement works or (ii) demonstrate and register an exemption (if available). Option one can difficult for landlords, particularly where there is a commercial tenant in occupation, as they are not likely to want to grant access to the landlord for energy improvement works.
The problem for landlords is that option two is not easy either, as section 35 of the Landlord and Tenant Act 1954 infers that it is tricky on lease renewal to alter the terms of the previous lease. Currently there is not enough case law to understand the position fully, as to whether the court is more likely to impose a new term that inhibits the tenant business, or consider their public policy obligation with regards to improving energy efficiency.
We would strongly advise that if you lease a portfolio of properties that you identify those properties at greatest risk of a problematic EPC rating. This will help to avoid a sudden need to carry out urgent works or scrabble for exemptions.
The Business Legal Services team at Banner Jones Solicitors are able to advise on a wide range of leasehold matters for both commercial and residential landlords and can be contacted on 01246 560560.
