MEES: Seeing the bigger picture

On 1 April 2018, a change to secondary legislation comes into force which will have a big impact on property. This in turn means that it will have a big impact on the RICS Assessment of Professional Competence (APC). In this article I will summarise the changes and discuss the impact generally on APC as well as on specific competencies. Summary of the changes The Minimum Energy Efficiency Standards (MEES) Regulations set out the minimum level of energy efficiency for private rented property in England and Wales. The minimum level of energy efficiency provisions will mean that, subject to certain requirements and exemptions: from 1 April 2018, landlords of non-domestic private rented properties (including public sector landlords) may not grant a tenancy to new or existing tenants if their property has an energy performance certificate (EPC) rating of band F or G (shown on a valid EPC for the property); from 1 April 2023, landlords must not continue letting a non-domestic property which is already let if that property has an EPC rating of band F or G. This is described as a prohibition on letting substandard property. In other words, it cannot be let. This will affect the investment in and operation and occupation of commercial and residential property. It will not affect properties that are not required to have an EPC, such as listed buildings (see p70). APC in general The interview is a conversation and not an exam. Candidates will need to be up to date and show an interest in all matters of general interest in property. While most questioning is around specific competencies, the chairperson often includes a general chat about hot topics towards the end of the interview. Candidates should read EG regularly, watch the news and have opinions about the key topics of the day. In 2018, there is no doubt that the impact of MEES will be a red-hot topic. Sustainability Sustainability is a mandatory competency for all candidates at level 1. This means that every candidate needs to know the basics of MEES. The spirit behind sustainability and the moral, legal and business drivers are vital to this competency. MEES is a major change to the legal drivers of sustainability. Leasing and letting No prizes for guessing that MEES will have an impact on this competency – in both residential and commercial. Letting requirements have included ensuring that there is an EPC, with the rating detailed on the sales particulars, for some time. In 2018, the rating will have a significant impact and be empirical evidence of an offence if it is F or G. Candidates will need to show an understanding of the impact of MEES on the market and letting processes. This is likely to have more impact on older solid-wall properties and the EPC rating will be of greater interest to assessors. Make sure you know it for your competency examples – particularly the case study. Purchase and sale In a similar vein, the EPC rating required to be shown on sales particulars will affect transactions. The Consumer Protection from Unfair Trading Regulations 2008 require sales/letting particulars to be accurate and not misleading. Vendors and buyers are likely to pay more attention to the rating as it will have an impact on the use of the property and likely costs associated with planned works to bring it up to standard. Valuation For many properties, particularly in the investment market, the value of a property is closely linked to the income flow. Anything which affects that income flow will affect the value. If a property cannot be let because of MEES, this will affect yield analysis and methodology. Uncertainty statements should be included in valuations affected by MEES and the valuer may need to agree special assumptions with the client. Valuers may feel that an EPC rating of F or G makes a property unsuitable security for lending. The RICS guidance – as detailed in Sustainability and Commercial Property Valuation, 2nd edition (RICS, 2013) – should be followed. This guidance note does not have MEES-specific guidance. Inspection The inspection and associated due diligence investigations provide the foundations for accurate advice to client. The EPC rating and MEES will be a key piece of information to the surveyor and candidates should ensure that their inspection checklists and investigative process provide relevant and accurate information. Landlord and tenant MEES can be a factor in rent review negotiation and arbitration decision making. This is because ease of letting and income flow are central to valuation for rent review purposes. Additionally, landlords may need to gain possession of protected tenancies through serving a hostile section 25 notice under section 30(f) of the Landlord and Tenant Act 1954 in order to redevelop as a result of an EPC rating. Property management Surveyors advising clients in property management will need to ensure that MEES are reflected in planned maintenance. There may be an impact on service charge budgets and clients will need to be informed. Corporate real estate The property life cycle will be affected by MEES as a poor EPC rating will result in a legal driver to hasten obsolescence. This will affect decisions to relocate or refurbish and long-term operational objectives. Development appraisal Development is not always a large mixed-use scheme. It can include partial redevelopment of residential. MEES will affect decision making on viability if the old or existing building has a poor EPC rating. Sensitivity analysis can reflect the risk and profit ratio targets can reflect the future-proofing element of energy efficiency measures. Local tax The law which affects a property is not a material factor and is taken into account at the antecedent valuation date (AVD) (1 April 2015 for the 2017 rating list). MEES were not in force at that date and the inability to let property will not be considered a material change for a rating appeal. However, voids on a high street as a result of MEES would be a material change; the question is whether they would be value significant at the AVD with no MEES in place. Grasp the nettle MEES provide a good opportunity to illustrate the holistic nature of APC. The competencies cross over and are all interlinked. It is important not just to know about MEES but to apply this knowledge in your surveying activities and complex reasoned advice to client across a number of competencies. Try to see the big picture and consider the client’s point of view in every competency. Kate Taylor FRICS is an APC chair and a DeLever APC coach. Follow Kate Taylor and Jon Lever on Twitter: @katetay73593006 and @deleverapc For full access to EG‘s pathway to success series on APC competencies, go to www.egi.co.uk/apcseries Useful resources APCeye magazine Critical APC information in a free monthly magazine. www.mydelever.com APC101 – WhatsApp Open group on APC Process discussions. All welcome. www.delever.co.uk/whatsapp APC presentation Online masterclass discussing key elements of the APC final assessment interview. Hints and tips on best practice. www.delever.com Free timeline wallchart A2 pictorial view of the APC process, based on the RICS guides and Jon Lever’s professional knowledge. www.delever.com Supervisor and counsellor APC training – formal CPD Tips on how to manage and support your candidates. www.delever.com APC mock interviews Practice your APC final assessment interview, including the presentation and competency-based questioning. A full-hour interview just like the real thing and immediate feedback from the two assessors. www.delever.com APC commercial property and residential revision guides Every forward-thinking APC candidate’s reference book for APC preparation. www.apctaylormade.co.uk Free trial: myAPCDiary This resource can save up to 60% of a candidate’s day-to-day APC administration. www.apcdiary.com RICS APC guides These should be read at least once every three to four months. Candidates from outside the UK also need to check their regional websites for any local APC requirements. www.rics.org