From 1st April 2023, there are new MEES regulations for commercial properties. The changes apply to both landlords and buyers of commercial property.
It is currently a legal requirement (subject to the below exemptions) that commercial buildings must have a rating of at least an E before a new or renewal lease can be granted.
New MEES Restrictions from 1st April 2023
It will be an offence to continue to let properties with an EPC rating of F or G.
Therefore, from 1st April 2023, all let properties with an EPC rating will need to have a minimum rating of E. It will be unlawful for landlords to continue to rent substandard commercial property.
To find out the current EPC rating for a property, visit this website.
Penalties for breach
For breaches lasting less than three months, a landlord renting out a sub-standard commercial property can lead to a fine of £5,000 or higher or 10% of the property’s rateable value, up to a maximum of £50,000. Breaches of the regulations lasting longer than three months can trigger a fine of the higher of £10,000 or 20% of the rateable value of the property, up to a maximum of £150,000.
Whilst a breach of the regulations does not affect the validity of the lease from 1st April 2023, the tenant will not be able to sublet the property unless the EPC rating is at least an E.
Exemptions of regulations
There are some types of properties that do not require an EPC. These are as follows:-
- Properties that do not use energy to control the indoor temperature. E.g. warehouses
- Temporary buildings (must be in situ for less than two years)
- Listed buildings (if compliance would unacceptably alter their character or appearance)
- Small buildings (less than 50m2)
- Industrial site or workshop with low energy demand
Certain legitimate reasons which will allow a landlord to continue to let a sub-standard commercial property. These reasons are as follows:-
- Consent – where improvement works are required, and consent is needed from either the tenant or a third party and this is refused, the landlord cannot make the improvements to comply.
- No further improvements to make – all improvements have been made, but the property remains at the current substandard.
- Devaluing the property – the landlord had been unable to increase the EPC rating because the landlord has obtained a report from an independent surveyor, which states that making the improvements would result in a reduction of more than 5% in the market value.
- New Landlord – a new landlord has a 6-month exemption of substandard property subject to an existing tenancy to carry out the improvements.
- New Buyer – A buyer of a tenanted commercial property with a rating below E can register a temporary six-month exemption to enable the buyer to get the property up to the required standard or register a longer-term exemption.
- 7-year payback – a landlord can show that the expected value of savings on energy bills over seven years is less than the cost of the improvements.
What can commercial landlords and buyers do to prepare?
Landlords and prospective buyers should act as quickly as possible to try and make their commercial properties compliant with the MEES regulations.
For a new lease, landlords need to consider whether to insist on certain requirements for a tenant when the heads of terms are drafted. Existing leases should be reviewed to check whether works can be carried out to improve the EPC rating and whether the costs of improvement can be passed to the tenant.
Commercial Property Solicitor
At Bridge McFarland LLP, we offer a professional yet personable approach to commercial property. Our extensive expertise and industry experience allow us to advise and assist a range of clients on their commercial property matters.