The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (“MEES Regulations“) introduced the Minimum Energy Efficiency Standards (“MEES“), which aim to encourage landlords to improve the energy efficiency of buildings via a restriction on granting new tenancies and continuing existing tenancies where the property has a sub-standard EPC rating.
Below are 10 key points to bear in mind concerning the impact of the MEES Regulations on residential property, or “domestic private rented property”:
1. Lots of MEES Regulations apply to both commercial and residential property
From 1 April 2018, landlords of “domestic private rented property” (i.e. residential property) or “non-domestic private rented property” (i.e. commercial property), are unable to grant new leases of properties without a minimum EPC rating of E: F and G rated properties are “substandard”. There are also restrictions on continuing to let substandard properties in the near future…
2. …BUT the restriction on continuing to let property applies earlier for residential property
Landlords are prohibited from continuing to let domestic private rented property with a commercial property substandard EPC rating from 1 April 2020; it is 1 April 2023 for substandard commercial property.
3. The MEES Regulations enable residential tenants to ask for the landlord’s consent to the tenant making “relevant energy efficiency improvements”
Tenants of domestic private rented property can ask the Landlord for consent to the tenant undertaking certain sorts of energy efficiency improvements to its property, even if there are provisions in the lease that would prohibit those alterations. The Landlord must not unreasonably withhold or delay its consent.
4. The MEES Regulations will not affect all residential property
Generally, for the MEES Regulations to apply there must be either an assured tenancy (for example, an assured shorthold tenancy), a regulated tenancy under the Rent Act 1977, or a certain form of agricultural tenancy.
If a tenancy is not one of these, the MEES Regulations will not apply. This means that leases of residential property to companies, leases of second homes (because the tenant must occupy the property as its principal home), leases of residential property granted on or after 1 April 1990 where the rent is over £100,000 per annum, or leases of residential property where the principal rent is £1000 or less (in Greater London) or £250 or less (elsewhere), will all be outside the scope of MEES.
5. Confusingly, the status of residential property can change
It is possible for a tenancy to move in and out of the scope of MEES. For example, if rents change during the term of a residential lease to push it above the £1000/£250 thresholds mentioned above the tenancy will become subject to MEES.
6. Social housing will not be caught
Low cost rental accommodation provided by a private registered provider of social housing and low cost home ownership accommodation offered by housing associations will be excluded from the MEES Regulations.
7. Certain types of landlords will fall outside the scope of the MEES Regulations
The MEES Regulations will not apply if a landlord is a registered social landlord under the Housing Act 1996, or where there is a tenancy granted by the Crown, a government department, local authority or certain housing associations.
8. Unlike commercial property, there is no upper or lower limit on length of term
It is possible for residential lettings of a significant term, for example 125 years or even 999, to fall within the definition of an assured tenancy and so be within the scope of MEES.
9. There are certain exemptions
If a landlord has a substandard residential property, it may still be able to let it.
Residential landlords, along with commercial landlords, can rely on the “consent exemption” (where a landlord can demonstrate that it has been unable to obtain a third party consent for any energy efficiency works), the “devaluation exemption” (where works would reduce the market value of the property by more than 5%) and certain temporary exemptions to cover situations where the landlord has no opportunity carry out relevant energy efficiency works.
Notably for residential property, landlords will be able to rely on the consent exemption if they plan to use Green Deal funding and the tenant refuses to confirm that the landlord may enter the Green Deal financing agreement.
If proposed works would adversely affect the structure or fabric of a property (as evidenced in a specialist’s report), the property can continue to be let despite its F or G rating. Similarly, if all relevant energy efficiency works are carried out and a property is still below E, it can be let (although the “seven year payback” test does not apply to residential property for the purpose of working out what is a relevant energy efficiency improvement).
Exemptions are only valid for a maximum period of five years (6 months for the temporary exemptions), do not benefit future landlords and must be registered on the PRS Exemptions Register.
10. There is an on-going consultation regarding the “no costs” principle for residential landlords
For residential property, energy efficiency works must generally be capable of being financed “at no cost to the landlord” – this does not apply to commercial property. This can be done via Green Deal finance, energy company obligations or local authority grants.
However, this is subject to on-going government consultation, which could result in landlords having to contribute up to £2,500 per property to the cost of improvement works.