Raising the MEES regulations

The government launched its first public consultation in 2019 on its proposals to amend the MEES Regulations to raise the minimum standard for MEES from the current EPC rating of E to either B or C by 2030. There was significant support for increasing that minimum standard to B in 2030, but the questions of how to get there and how to make the system work as intended now need to be answered. On 17 March 2021, a further consultation was published that focuses on, and responds to, concerns and challenges around compliance and enforcement in the light of that increased minimum standard and also considers the possibility of an interim milestone. The government is proposing to raise the minimum EPC standard to C in 2027 in order to encourage incremental improvements, rather than seeing landlords waiting until 2030 before taking action. This will need to be enforced, and to deal with the issue of the enforcement authorities not having data readily available in order to identify breaches of MEES, they are proposing that each change should be preceded by a two-year “compliance window”. The compliance window will begin with the requirement for landlords to present a valid EPC for their let properties to a central register, which will then identify the properties that are substandard and in need of improvement. This marks a crucial change of approach, as until now landlords have not been required to present a valid EPC to be checked, and it has been left to the enforcement authorities to identify for themselves the properties to which MEES applies and the current EPC rating. This is not straightforward and is resource-intensive for the enforcement authorities and explains why there has been so little enforcement of MEES to date. Compliance timeline Assuming that the proposals described in the consultation are implemented, a summary of the timeline of events along with flowcharts showing the enforcement points up until 2030 are as follows: (a) From now until 30 March 2023: properties let with an EPC below E and no valid exemption are subject to enforcement risk (no change to the current regime); (b) 1 April 2023 to 30 March 2025: properties continuing to be let with an EPC below E and no valid exemption are subject to enforcement risk (no change to the current regime); (c) By 1 April 2025: all rented properties to be registered and have a valid EPC (this effectively increases the risk of enforcement under (b)); (d) From 1 April 2027: all rented properties to meet a minimum of grade C or have a valid exemption registered;  (e) By 1 April 2028: EPCs to be checked (renewed if possible) for rented properties – this identifies properties which will need further improvements; and (f) From 1 April 2030: all rented properties to meet a minimum of grade B or have a valid exemption registered. Next steps In order to make this system work, going forward all let commercial properties will need to have a valid EPC at all times. Currently, once an EPC expires after 10 years, a new, valid EPC is only required on a sale or when a new lease is granted, but the government is now suggesting that it would become compulsory to renew the EPC on expiry, and also to update the EPC after works are done. This makes sense given the reliance on the EPC rating for MEES to be enforceable, as without a valid EPC there is no rating to be checked for compliance. The government also intends to address the current confusion over heritage buildings by clarifying that all let buildings, whether or not they are listed or in a conservation area, must have a valid EPC. Whether or not works can be done to improve them then becomes a question for, ultimately, the planning regime, and where planning consent is needed and cannot be obtained then an exemption would continue to be available. The government is also alert to, and seeking to resolve, the challenges that arise when implementing MEES on lettings of shell and core space. Those challenges arise because MEES currently does not allow landlords to let properties with an EPC rating of less than E, which is often the case with shell and core space because several elements that affect the EPC rating will be installed by the tenant after the lease is granted, but their absence results in adverse assumptions being made by energy assessors that affect the EPC rating. To address this, the government has proposed that MEES would no longer be enforceable at the point of letting and instead that landlords would have six months after granting the lease before enforcement can take place. This will give tenants time to fit out and bring the property up to standard and enable the landlord to legally grant a lease of the property to the tenant in its shell condition. This does, of course, leave open the question of what happens if the tenant’s fit-out does not result in the property achieving the relevant standard, for which the government potentially has another answer. Currently the MEES obligations apply to landlords, however under the new proposals the government, recognising the role of fit-out on EPC ratings, is also considering imposing some MEES obligations on tenants. This means tenants should be considering MEES beyond just the effect on their ability to underlet (or assign, if the assignee thinks it might want to underlet in the future). That said, there is no detail on how obligations will be imposed on tenants or what this might look like (and new primary legislation will be needed in any case). Another proposal being made in order to improve enforcement is a tightening of the law on marketing properties so that online property platforms, as well as agents, are legally required to refuse to market properties without a valid and compliant EPC. Legislation placing requirements on letting agents is currently in place, however the legal position on online property platforms is less clear. The government proposes to seek primary powers to place a requirement on letting agents and online property platforms to only advertise and let properties that are compliant with the MEES Regulations. Welcome change Overall, the policy objectives are sound and the new proposals attempt to clarify some of the previous confusions in relation to MEES, such as the position of heritage buildings. Further, the proposals seek to make compliance and enforcement easier for both local authorities (through the “compliance windows” and proposals to permit local authorities to use EPC Open Data for MEES enforcement) and for landlords (though the introduction of a simple standardised and user-friendly calculator for the seven-year payback exemption). This consultation is one of several that are currently live in the energy arena. The government is also consulting on a system for measuring and comparing the “in use” environmental performance of large (more than 1,000 sq m) commercial buildings, using an adapted version of display energy certificates to create a scale based on the NABERS scheme that has been so successful in Australia (and was recently launched in the UK by the Better Buildings Partnership). And finally, a third consultation has been issued on mandatory non-financial reporting for large businesses. We strongly encourage interested parties to respond to these consultations; responses are due by 9 June 2021. Simon Keen is a counsel in the real estate group and Megan Stewart is a trainee at Hogan Lovells