Gateley : New lettings – exemptions from MEES regulations

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Since 1 April 2018 landlords are prohibited under the MEES Regulations[1] from granting new tenancies of non-domestic properties that have an EPC rating of F or G unless they carry out cost-effective energy saving measures or claim and register another type of exemption on the Government's online PRS Exemption Register.

For an overview of the Regulations, see our blog posted in February 2018.

What are the exemptions?

They include:

1. Recommended measure is not cost-effective and the property still has an F or G rating - an improvement is not cost-effective if it would not pay for itself through savings in energy bills within seven years. In claiming and registering this exemption, the landlord will have to provide copies of three quotes for the cost of purchasing and installing the measure from qualified installers, and confirmation that the landlord is satisfied that it does not meet the seven year payback rule (including copies of the calculations made to demonstrate this).
2. Devaluation - where an independent surveyor determines that the recommended energy efficiency improvements would result in a reduction in the value of the property by more than 5%. In claiming and registering this exemption, the landlord will have to provide a copy of a report prepared by an independent RICS surveyor evidencing this.
3. Third party consent - where consent is required from a third party to the measure (such as a tenant, planning authority or superior landlord) and this is refused or has been given with unreasonable conditions. In claiming and registering this exemption, the landlord will have to provide copies of any correspondence or relevant documentation demonstrating that consent for the energy efficiency measure was sought and refused or granted subject to unreasonable conditions.
4. Six month exemption - where the landlord has only recently become landlord in specified circumstances (but not from a purchase) and it would be unreasonable for it to comply with the MEES Regulations immediately. To claim and register this exemption, the landlord will have to confirm the date and the circumstances under which it became the landlord of the property.

What's the time limit of the exemptions?

To be able to claim and rely on the exemptions, the landlords must ensure that they have registered the correct information on the PRS Register before letting the property. Exemptions 1 to 3 above are valid for 5 years except that the exemption for third party consent (3 above) ends before 5 years if the tenant who refused consent leaves the property in that period. Also, exemptions do not pass to a new owner/landlord of the property on a sale, and the landlord/new owner will have to go through the whole process again.

What are the penalties?

The penalty for letting a property in breach of the MEES Regulations is between £5,000 and £150,000 depending of the length of the non-compliance and the rateable value of the property.

What are the financial implications of MEES?

If a property cannot be lawfully let, or if significant costs of upgrading the non-compliant property will have to be incurred, this will have an effect on its capital and rental value. Also, if works have to be carried out to a property, it is likely to cause delays in achieving rental streams from its letting.

This blog post was written by solicitor Kim Grundström from Gateley Plc's Real Estate team.

[1] Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015.