EPC overview and how MEES regulations could make your commercial building unlettable

EPC overview and how MEES regulations could make your commercial building unlettable

The minimum energy efficiency standards (MEES) were put in place to meet obligations to improve energy efficiency in inefficient buildings under the Energy Act 2011 and to meet UK targets for CO2 reduction.

Under the Energy Efficiency (Private Rented Building) (England and Wales) Regulations, from 1st April 2018 it is unlawful to grant a new tenancy of domestic and commercial buildings where the building has an Energy Performance Certificate (EPC) rating of F or G. This article is aimed at Landlords with commercial building.

It is worth summarising the current position regarding EPCs for commercial premises. An EPC rates how energy efficient your building is using grades from A to G, with A being the most efficient.

Who must undertake an EPC for their building?

You must have an EPC if:

  • you rent out or sell the building;
  • a building under construction is finished;
  • there are changes to the number of parts used for separate occupation and these changes involve providing or extending fixed heating, air conditioning or mechanical ventilation systems.

Are there any buildings that do not require an EPC?

There are limited situations where an EPC is not required. You do not need an EPC if you can demonstrate that your building is any of the following:

  • listed or officially protected and the minimum energy performance requirements would unacceptably alter it;
  • a temporary building only going to be used for 2 years or less;
  • used as a place of worship or for other religious activities;
  • an industrial site, workshop or non-residential agricultural building that doesn’t use much energy;
  • a detached building with a total floor space under 50 square metres;
  • due to be demolished by the seller or landlord and they have all the relevant planning and conservation consents.

Clearly for farmers, the most eye-catching exemption above is the one that refers to non-residential agricultural buildings. Although there is limited guidance as to what constitutes an “agricultural building” for the purposes of EPC exemptions and in the words of one of my registered EPC assessor contacts, “if the building is full of grain and has a tractor in it, it’s an agricultural building. If there’s a single tractor and a stack of boxes filled with clothes, then it isn’t.” In addition, the presence of an office or toilet in a building is likely to undermine the exemption.

If it can be proved that a building is used for agricultural purposes, ie grain store, farm machinery storage and the like, then an EPC is not required regardless of energy consumption. However, low energy buildings can also be classified as exempt from requiring an EPC. These buildings usually have the following characteristics:

  • No heating, cooling or mechanical ventilation.
  • No domestic hot water system.
  • Low human occupancy zones such as warehouse storage. If a sub zone is classified as an office or toilet for instance it cannot be made exempt on low energy grounds.
  • Subject to the above, lighting can be present in any form.

If you are in any doubt whether or not a building is exempt, it is advisable to speak to an accredited EPC assessor. The register of accredited EPC assessors for non domestic buildings can be found at: www.ndepcregister.com/searchAssessor.html

The introduction of MEES

The general presumption is that an EPC is required and the introduction of the MEES regulations from the 1st April 2018 does not alter this. What the MEES regulations impose is two fold:

  • From 1st April 2018 landlords of buildings within the scope of the MEES regulations must not renew existing tenancies or grant new tenancies if their building has an EPC rating of F or G unless the landlord registers an exemption (see below)
  • From 1st April 2023 landlords must not continue to let any buildings which have an EPC rating of F or G unless the landlord registers an exemption.

Do you have to comply with MEES?

At the risk of stating the obvious, if you have a building and it has an EPC that is not more than 10 years old and your building has a rating of A – E then you will not be affected by the MEES regulations.

In order to comply, all buildings must meet MEES by undertaking permissible, appropriate and cost-effective improvements, unless exempt. The exceptions are those buildings let on tenancies of more than 99 years and less than 6 months and those buildings that are exempt from having an EPC.

What are the exemptions?

Exemptions may apply when:

  • Improvements are not cost-effective, for example, within a 7 year period
  • Improvements are likely to reduce the value of the building by 5% or more, or in some circumstances, damage the building
  • Third party consent cannot be obtained for the required improvements.

What are cost effective improvements?

A measure, or a package of measures, meets the seven year payback test where the expected value of savings on energy bills that the measure (or package of measures) is expected to achieve over a period of seven years, starting with the date the installation is completed, are equivalent to, or greater than, the cost of repaying it.

Any exemptions must be registered on the Private Rented Sector exemptions register.

Compliance and penalties

When a breach of the regulations is found, a compliance notice from the local weights and measures authority may be served requesting further information. If it is found that there has been a breach of MEES and that breach has been in place for less than 3 months a financial penalty may be applied of up to £5000 or 10% of the rateable value of the building up to a maximum of £50,000. Where the breach has been in place for longer than 3 months, the financial penalties increase to £10,000 or up to 20% of the rateable value of the building (whichever is the greater) up to a maximum of £150,000.

What steps should you take now?

  • Audit your properties ahead of the statutory deadlines to avoid any delay in letting your buildings beyond 1st April
  • Take advice. Whirledge & Nott would be happy to offer guidance to any landlords, but where landlords know their buildings are not compliant, speak to an accredited EPC assessor. Simple and cheap improvements to lighting may be enough to increase the EPC rating.
  • Where applicable, make an application to the PRS exemptions register.

The PRS exemptions register

Where a landlord believes that an F or G EPC rated building they let qualifies for an exemption from MEES, an exemption must be registered on the PRS exemptions register. The Secretary of State is required to maintain the PRS exemptions register, which sets out:

  • Information on the exemption from MEES that a landlord is relying on for a sub-standard domestic or non-domestic PR building.
  • Related information, including the address of the building, name of the landlord where not an individual, and a copy of the EPC.
  • Any publication notice.

The PRS exemptions register will be publically available from 1 April 2018.

Delay in setting up PRS exemptions register

The Landlord guidance produced by the Department for Business, Energy & Industrial Strategy regarding the non-domestic private rented property minimum standard: www.gov.uk/government/uploads/system/uploads/attachment_data/file/656541/Non-Dom_Private_Rented_Building_Minimum_Standard_-_Landlord_Guidance.pdf

The government is delaying implementation of the PRS exemption register because it is concerned that most landlords of sub-standard residential properties may be eligible for an exemption from meeting the minimum energy efficiency standard as a result of the pay as you save (PAYS) finance offer under the Green Deal energy efficiency scheme becoming unavailable to them. This has resulted in the Department for Business, Energy, and Industrial Strategy launching a consultation on 19th December 2017 to remove the “no cost to the landlord” principle for residential properties. The consultation closes on 13 March 2018. Whilst this consultation relates to residential property only, it has had the effect of delaying the public launch of the RPS register. However, the guidance indicates that the PRS exemptions register is currently being piloted and landlords who wish to register an exemption for a non-domestic building as part of the pilot should e-mail the BEIS minimum standards team: PRSregisteraccess@beis.gov.uk

Any valid exemptions registered as part of the pilot will remain valid and will not need to be re-submitted at a later date.

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Anthony Hicks

Director at Whirledge & Nott
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