6 March 2018
Landlords could face fines of up to £150,000 if their rented property fails to meet the Government’s new Minimum Energy Efficiency Standards (MEES) regulations.
These come into force on April 1 and will mean anyone letting a domestic or commercial property with an energy efficiency rating of ‘F’ or below could incur fines per property. However, opportunities exist as well for landlords to reduce costs and improve the value of their property interests.
Focusing on commercial lettings, Kathryn Johns, who is a Commercial Property Solicitor at Phillips, said: “For ten years, landlords have been obliged to provide Energy Performance Certificates (EPC) to tenants, which enabled them to make an informed decision on the potential energy costs of the properties they occupied. However, there was no limitation on letting properties with ratings of F or G. The new regime will only permit landlords to let properties with ratings of A to E.”
However, Kathryn advises that in some limited circumstances the regulations will not apply. Properties used for holiday lets or temporary buildings do not require EPCs and therefore would not be affected by the regulations, and properties subject to lettings of less than six months (unless the tenant has occupied the property for more than one year or there are renewal provisions drafted into the tenancy) or tenancies with terms of more than 99 years will also be excluded.
Even if the regulations do apply, Kathryn also highlights the fact that some exemptions drafted into the regulations may mean that landlords and tenants are not required to take any further steps to comply with the regulations. These include a devaluation of the property by more than five percent, a failure to recoup the cost of necessary works via estimated lower energy bills over a period of seven years and an inability to obtain the necessary consent for the required works, such as from a freeholder or lender.
Finally, Kathryn wants to emphasise the long-term positives of this new legislation. “While it may seem onerous at first, a review of a landlord’s property portfolio or a tenant’s lease could yield valuable opportunities for both parties, such as lower energy bills for tenants, improvements in the overall standard of a property through well-planned capital expenditure and potential preservation of capital value for a landlord. A surveyor’s report, a new set of EPCs or a comprehensive lease review for landlords and tenants could unearth some hidden treasure!”
With further measures due in April 2023, prohibiting the continued letting of commercial and residential properties with a rating of ‘F’ or ‘G’(even if a tenant continues to occupy a property without a new formal tenancy agreement) and higher efficiency standards likely to follow, businesses should take precautionary steps now to avoid further costs later.
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