Motor Matters - Making time for ME(ES) (Minimum Energy Efficiency Standard)
Putting aside for one moment whether or not climate change is real (and who knows, Mr Trump might be proved right) most of us would accept that becoming more energy efficient is ‘a good thing’. Certainly in motor manufacture the market continues to develop more fuel efficient and ‘greener’ cars. But what about the buildings you occupy – how does energy efficiency impact them? It might come as little surprise that the legal environment in these matters is focused more on stick than carrot. Nonetheless it’s important for all building owners and occupiers to be aware of the Minimum Energy Efficiency Standard (MEES), and especially some key changes which start to take effect from April 2018.
What does MEES do?
The Regulations, as the name suggests, look at bringing buildings up to a minimum energy rating to improve their carbon emissions. The rating is based on something called an Energy Performance Certificate (EPC), which produces a ‘green rating’ for the energy consumption of a building much along the lines of the certificates produced for cars and electrical items. MEES targets low performing buildings (those rated below an E) by encouraging (!?) the relevant landlord to carry out improvement works to raise the rating of the building. From April 2018 a landlord will not be able to lawfully let a building unless it either carries out works to improve the energy efficiency of the building, or that it can claim the benefit of one of the limited number of exceptions to this requirement. From April 2023 the scheme will be extended so that a landlord cannot continue to let a building (even if the lease was granted before that date) unless improvement works are carried out.
First the good news – if you are an owner occupier of a building you can largely ignore MEES, at least for now. There’s no obligation to improve a building which you own and occupy for your own purposes. But do bear in mind that if you sell the building to anyone else or plan to let it out then the EPC rating could (a) affect the value that a buyer is prepared to pay for it and (b) MEES will definitely become relevant if you plan to retain the freehold as an investment. Equally if your building is rated as E or better you’ve nothing to worry about – although there is a suggestion that the energy efficiency ‘bar’ will be set higher in future so the reprieve may be temporary.
The onus is on the ‘landlord’ to carry out works or claim an exemption so it’s easy to assume that if you rent property then there is no impact on you as a tenant. However, you should bear in mind that your landlord may try to carry out works to improve the building, and may try to pass that cost on to you, whether through a service charge or otherwise. Whether a landlord is entitled to do so depends on the terms of the individual lease. In fact in some cases, the tenant refusing to allow the landlord to have access to the property to carry out the works might itself be grounds for the landlord to be able to claim an exemption from having to do the works. Equally if you as a tenant want to sub-let the whole or any part of the property then you become the landlord for the purpose of MEES and the obligations may fall on you instead.
Doing nothing is not an option (unless you are an owner occupier). The Regulations (and guidance issued last month) both focus on the need to respond proactively to the new requirements. In practice this means either doing or planning to carry out works, or identifying if a relevant exception applies and then registering that exemption on a newly created national register (which went live on 1st April 2017). Even applying for an exemption is not a ‘notify and forget’ business. All of them are time limited, with a maximum allowable period of 5 years, which means that this is something which will have to be monitored and reviewed on a regular basis. Why five years? - Well it is because the exceptions themselves cover situations such as where a landlord cannot obtain the consent of a third party (typically the tenant). But if that tenant moves out or their lease comes to an end then the exemption ends too, and the landlord has to try again to secure the consents before it can try and re-register and exemption. Another ‘allowable exemption’ is where the cost of doing the works would exceed the benefit (in terms of energy bill reduction) over a period (seven years) which is known as the ‘golden rule’ test. However, as green technologies become more prevalent (as we saw with the gold-rush to install solar panels a few years back) the cost of these technologies will generally go down over a period of time. So what may have been unviable five years ago may be affordable in today’s (or tomorrow’s) market.
Ignoring it completely could be expensive. Unlike the original enforcement regime for commissioning EPCs (which arguably made it cheaper to risk a fine than commission a report in the first place), the fines for a breach of MEES are far more substantial. In fact, depending on the type of breach, and the value of the property concerned, the fines can be as high as £150,000. Enforcement will lie with the local weights and measures departments, though the Regulations are not clear as to who can retain any fines recovered. If they can be retained locally then there will be a clear incentive on pressed local authorities to exploit potential revenue-generating opportunities…
So what should you be doing in the coming weeks and months?
- Check if there’s an EPC in place for the property. A building without one is not subject to MEES obligations either. But in most instances it will mean that a building cannot be let or sold in the future without one.
- Assuming there is one when was the EPC carried out? The chances are that if the EPC is fairly old (and the first ones date back as far as 2007) then it may not be accurate, simply because few owners cared too much about them. However, the EPC is compiled using a computer modelling programme that calculates the rating based on the information which you feed into the programme. The less information you give it, the worse the rating it will generate as the default setting is to assume that there is no energy efficiency measures in place. If the property has undergone refurbishment works it’s quite likely that no new EPC was commissioned and it will certainly be worth discussing with a surveyor whether commissioning a new one would bring the property to at least an E banding. Conversely if the property is already E rated or above you may not need to do anything, but be aware that the bandings (in terms of what meets the technical requirements for a specific rating) have gradually increased over time. So a property that was E rated in 2007 might not be E rated in 2017.
- Read leases carefully. Whether landlord or tenant it’s important to have an understanding of what the lease entitles the landlord to do, and more importantly to charge for. The Regulations do not give the landlord a statutory ‘right’ to go in and carry out energy efficiency works, or to pass the cost of these on to the tenant. Much will turn on the wording of an individual lease document. And remember that refusing to allow a landlord access (provided it is reasonable to do so) may actually give them a statutory exemption from the requirement to do those works, at least temporarily.
- If approaching a lease expiry date it would be as well to factor in the cost of doing works to improve the energy rating of the building. Unfortunately cost alone is not a ground for claiming an exemption and there is no concept of financial hardship in the Regulations. It is only if the cost of works is such that it would exceed the return on investment through reduced energy use that justifies not carrying them out in the first place.
The content of this article is for general information only. For further information regarding the Minimum Efficiency Standard, please contact Melissa Loucas
on 01603 756482 or a member of Birketts' Motor Industry Team
. Law covered as at April 2017.