Commercial Landlords and Investors Beware: Impending Changes to MEES and EPC requirements from 1st April 2023 – no joke!

As part of the UK Government’s drive to achieve net-zero carbon by 2050, landlords, investors and developers should beware the upcoming changes to MEES and EPC requirements from 1st April 2023.

EPC ratings for buildings are graded A to G, with A being the most energy efficient. It has long been the case (since 1st April 2018) that a new lease could not be granted to new or existing tenants if the property had an EPC rating of F or G, unless the property had been registered on the PRS (Private Rented Sector) Exemptions Register. Until now, a lease of a property with an EPC rating of F or G granted before 1st April 2018 could continue after that date, if it had been granted before that date.

Importantly, from 1st April 2023, it will be unlawful to continue to let a property leased before that date, if it does not have a rating of at least E. The penalty payable is based on the rateable value of the property and can be between ￡5,000 and ￡150,000 per breach, depending on the length of the breach. Details of the breach may also be made public, potentially causing reputational damage to the landlord.

As well as the existing exemptions, such as listed building status which may prevent energy efficiency improvement works, there are a few possible (temporary, of usually approximately 5 years’ duration) exemptions to the new requirements from 1st April 2023, which will have to be registered on the PRS Exemptions Register. In brief, these have to do with:

(i)?????????????The inability to obtain third party consent to do energy efficiency improvement works where needed, such as planning, tenant/occupier or lender consents;

(ii)???????????The cost of the works would be greater than the energy saving over 7 years;

(iii)??????????The works would devalue the property by more than 5%;

(iv)??????????The landlord having just become the landlord by way of purchase of the property subject to an existing tenancy. In this case, the new landlord has a 6 month exemption.

It is also possible that these minimum EPC requirements will increase again in a few years’ time; and it has been mooted that commercial properties will need an EPC rating of C or higher by 1st April 2027, and B or higher by April 2030. Whether that is realistic or not, remains to be seen.

The above is a brief summary only and does not constitute legal advice. For more details and all your commercial property legal needs, please contact:

Richard Howes?: Partner, Zhong Lun Law Firm, London

E:[email protected]

M: +44 7376088920??T:?+44 20 7382 1572