How does this affect your properties?
If your organisation lets or sublets properties, or might acquire properties to let out, you will need to consider potential letting restrictions.

These restrictions may lead to a requirement for refurbishment of buildings, which could inform rental negotiations and affect values.

Potential cost savings can be made at pre-acquisition, asset business planning, property management, leasing and disposal stages.

Overview of the Regulations

What is it?
The Energy Act 2011 requires the Government to implement regulations by April 2018 to improve the energy efficiency of buildings in the non-domestic private rented sector in England and Wales. Minimum energy efficiency standard (MEES) regulations will require eligible properties in the sector to be improved to a specified minimum standard. Separate rules apply in Scotland and Northern Ireland.

So what's new?
Having considered consultation responses as to how the regulations should be amended or improved, the Government has now published its formal response which details, subject to Parliamentary review, how these regulations will be implemented.

Will this affect properties that we own, manage or occupy?
The regulations apply to any property that is not a dwelling, is let for more than 6 months and less than 99 years and which requires an Energy Performance Certificate (EPC).

What's the standard?
The Minimum Energy Efficiency Standard will be set at an EPC rating of E and will apply to all categories of non-domestic property. From 1st April 2018 the regulations will apply upon the granting of a lease to a new tenant or to an existing tenant and lease upon lease renewals. From 1st April 2023 the regulations will apply to all privately rented property in scope of the regulations, including where a lease is already in place and a property is occupied by a tenant.

What if a property can't be improved to an E EPC?
Exemptions, lasting up to five years, will apply (so that only permissible, appropriate and cost effective improvements are required) if:

  • The measures are not cost-effective, either within a seven year payback, or under the Green Deal's Golden Rule 
  • Despite reasonable efforts, the landlord cannot obtain necessary consents to install required energy efficiency improvements, including from tenants, lenders and superior landlords.
  • A suitably qualified expert provides advises that the measures will reduce a property's value by 5% or more, or that insulation required to improve the property will damage the property.

Are there any sanctions?
There will be fines for non-compliance which will reflect the degree of infringement, and length of non-compliance. Some infringements will be publicised to encourage compliance.

Is the domestic sector affected?
Yes. The regulations apply to any domestic privately rented property in a similar way in principle to non-domestic but with some minor differences in the exemptions:

  • They have undertaken those improvements that are capable of being installed within the Green Deal's Golden Rule but remain below an EPC rating of E. 
  • They are unable to install those improvements because the funding entails Green Deal finance and they or their tenant fail the relevant credit checks.  

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.