Minimum Energy Efficiency Standard (MEES): One Year On

23rd April 2019

The Minimum Energy Efficiency Standard (MEES), introduced by the UK Government, came into force on the 1st April 2018 – impacting both the commercial and residential property industry. The MEES Regulations have led to any properties that do not achieve a minimum energy performance certificate (EPC) rating of ‘E’ becoming effectively unlettable and (unless exemptions apply) less desirable for purchase. Although the government previously estimated that just under a fifth of UK commercial property falls below this standard, one year into the process it is thought that there has yet to be a single enforcement relating to a failure to meet MEES requirements. Suggestions are that this could be due to registration of exemptions on the Private Rented Sector (PRS) Register and the timing of new leases since the Regulations were introduced. Others suggest that local authorities – who are responsible for enforcing MEES – do not have the necessary resources to carry out checks and follow through with enforcement.

The attention of the property industry is now turning towards the inclusion of all existing leases. For commercial leases, from the 1st April 2023 (1st April 2020 for residential leases) the scope will be extended to cover all existing leases as well as new leases. Essentially, this means that even where a long-term lease (for example 10 years) is in place, the leased unit must have an EPC of at least an ‘E’ to continue to be leased lawfully.

The penalties for renting out a property that is in breach of MEES Regulations will be equivalent to 10% of the property’s rateable value (for breaches within the first three months) and subsequently rising to 20% of the property’s rateable value. Therefore, landlords need to act fast to ensure buildings comply with the regulations, in order to protect future revenue from their portfolio.

There are, however, opportunities to be capitalised on as well for landlords and investors.  By improving the energy efficiency of a building, it will make the building more attractive to potential tenants and the building could feasibly command a higher rental income.

Industry experts recommend that landlords ensure that EPC status, lease expiry date and asset schedules are up to date and that EPC data is collated and stored in one place.  Landlords could feasibly reduce the number of F or G rated buildings in their portfolios, by improving the data that they record and monitor in relation to each asset.  Where assessments and data cannot withstand scrutiny, an asset is potentially more likely to be given a lower rating.

Landlords will need to audit their portfolios to establish which properties are affected and carry out energy assessments to ensure each building holds a recorded EPC.  S2 Partnership’s online property risk management software, RiskWise, is an ideal solution for storing, monitoring and analysing EPC data across a property portfolio.  The information can be viewed quickly and easily on the RiskWise Dashboard, allowing landlords to analyse their assets on a Unit by Unit level and plan and track improvement strategies or mitigation plans accordingly. It is anticipated that minimum energy standards may be raised by the government in future, and RiskWise has the flexibility to easily accommodate any future changes in legislation.

The dashboard graphs clearly display the proportions of properties in each EPC category (showing their rating and scoring) which quickly identifies which Units are rated ‘F’ or ‘G’ and are therefore in need of energy efficiency projects or building improvements, to improve their ratings. Further vital information about the Unit is also presented, such as the size of the Unit and whether it is occupied or vacant – helping to determine when the unit will be in scope of MEES.

The equivalent requirements in Scotland are The Assessment of Energy Performance of Non-Domestic Buildings (Scotland) Regulations 2016 which, since 1st September 2016, introduced requirements and obligations on owners of qualifying buildings to either: carry out certain energy efficiency improvement works within 3½ years; or accept an obligation annually to report energy consumption and to keep a Display Energy Certificate (DEC) exhibited at the property until efficiency measures have been implemented.

Sustainability is now becoming synonymous with ‘best practice’ and is the best way to ensure continued occupancy and maintained asset value.  Therefore, making environmental performance a key part of business strategy is proven to have a number of business benefits. S2 Partnership has a team of qualified environmental consultants on hand to help organisations manage environmental priorities effectively.  S2 has held ISO 14001 for its own operations since 2007, and is also proud to be a GRESB Premier Partner, highlighting its commitment to managing ESG data and helping clients to improve ESG performance across the sector.

For further information about RiskWise or to contact one of our environmental consultants, please contact us.