On 23 July, the long-awaited consultations on the Minimum Energy Performance Standards of Buildings (MEPS) were published. These set out proposals for the minimum level of energy efficiency below which private sector premises may not be let to tenants after 1 April 2018. There are separate consultations for domestic and non-domestic properties. Both consultations close on 2 September which, coinciding as it does with the summer holiday season, may be thought a rather short period in which to provide a well-considered response. Looking at the non-domestic consultation:
'E' rating threshold for lettings
The consultation, as widely expected, proposes that an EPC 'E' rating should be the minimum. As at 2012 it was estimated that only 18 per cent of non-domestic buildings were 'F' or 'G' rated, although there is industry concern that, as assessment methods evolve, some of those previously granted an 'E' rating or higher might on a later assessment fall below the threshold. For that reason some landlords may consider carrying out precautionary EPCs of all stock so that those which now merit an 'E' rating or higher can be 'MEPS proof' for at least the 10 years duration of the EPC.
The idea is that the EPC and MEPS regimes should be complimentary in that if a property is exempt from the requirement to supply an EPC before letting, then it would be exempt from the MEPS. However, whilst an EPC (if required at all) is needed before a letting of any term, the consultation seeks views on whether MEPS should apply only to leases with terms between six months (except where renewed more than twice) and 99 years.
Exemptions
The consultation proposes that the landlord could let a property with less than an 'E' rating if it has undertaken all energy efficiency improvements which would meet the 'golden rule' – a concept which was developed in relation to the Green Deal. The golden rule is basically that repayments for energy efficiency improvements must be the same or less than the expected energy bill savings.
Landlords will not be obliged to do works for which the consent of a third party, such as the head landlord, an existing tenant or the local planning authority, is required and cannot be obtained despite the landlord having used its best endeavours. There is a suggestion that guidance may be provided as to what 'best endeavours' would mean in this context and also as to when any conditions imposed on consent would be regarded as unreasonable, so that the landlord could let the property without carrying out the works.
Exemptions would not last indefinitely but only for five years, after which the landlord would either have to bring the property up to an 'E' rating or demonstrate again that the exemption applied.
Commencement date for new and pre-existing lettings
The government’s preferred option is a transitional period, whereby the regulations apply to new leases granted to new tenants from 1 April 2018 but with a 'backstop' date of 1 April 2023 after which the requirements would apply to all leases regardless of when they were granted.
Enforcement
As for EPCs, Trading Standards Officers will be responsible for enforcement of the regulations. The consultation seeks views on the levels of penalty for non-compliance, suggesting that it should be a percentage of the rateable value of the property subject to a maximum and minimum sum. Another question for consultation is whether there should be a system whereby landlords can get a certificate of exemption from their local authority. This could be a voluntary scheme for the landlord to have a means of demonstrating compliance if challenged, rather like a Lawful Development Certificate under the planning regime, or a compulsory requirement so that the landlord would be in breach if it let property and could not produce either an EPC with at least an 'E' rating or a certificate of exemption.
For more information please get in touch with our Real Estate team.
We have significant experience of dealing with retrofit issues to raise EPC ratings. If you have any queries, please contact Michael Barlow of our Energy and Environment team.