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Letting a commercial property? Ensure you are EPC ready

Minimum Energy Efficiency Standard (MEES) means that Landlords with properties with an  Energy Performance Certificate (EPC)rating of less than ‘E’ will have to carry out works to improve the energy performance of the building in order to let, or continue letting, the building.

MEES apply to both residential and commercial buildings, which are required to have an EPC certificate.

MEES dates are fast approaching:

  • From 1 April 2018 it will be unlawful to grant a new lease of residential or commercial property (with an EPC of less than E);
  • From 1 April 2020 it will apply to all residential lettings (both new and existing);
  • From 1 April 2023, it will apply to all existing commercial lettings (so it will be unlawful to continue to let properties with an EPC under E).

Leases that are in breach will still be valid leases, but Landlords will face significant fines (for a commercial property a breach for up to three months could be a fine of £50,000, and a breach of three months or more a fine of £150,000; for residential, the fine is up to £2,000 if the breach is for less than three months, and a maximum of £4,000 if more than three months).

However, there are a number of exemptions but those exemptions need to be registered before 1 April 2018.

The Exemptions Register opened in April 2017, and Landlords should be registering as soon as possible. Note that exemptions last for five years only, after which time a re-application is needed. Importantly, if a property is sold a new Landlord will need to re-register an exemption (the previous owner’s exemption does not pass with the property).

From 1 April 2018 it will be unlawful to grant a new lease of residential or commercial property (with an EPC of less than E)

The exemptions are:

  • Seven years pay to backtest: the capital cost of the energy efficiency measures is not cost-effective within a seven-year period;
  • Third-party consent: despite reasonable endeavours, necessary third-party consents cannot be obtained;
  • Property devaluation: where the improvements would reduce the property value by 5% or more;
  • Recent Ls: a temporary six-month exemption is available, but only applies in narrow situations (eg where L acquires the property subject to an existing lease, or on an LTA 1954 renewal).

The most important points to bear in mind are that:

  • An exemption is only valid if it is required;
  • Exemptions do not transfer on a sale; and
  • The potential consequences of letting a sub-standard property are such that it is no longer sufficient to cursorily examine an EPC (ie the EPC should be carefully checked).
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