Any commercial letting, subletting, tenant or landlord works, dilapidations claim and rent reviews effected on or after 1 April 2018 will be affected by the Minimum Energy Efficiency Standards (“MEES”) introduced by the government.
From 1 April 2018 a landlord cannot lawfully grant a new tenancy, and from 1 April 2023 cannot extend or renew an existing tenancy, unless the property has an EPC rating of at least rating E. If rated lower the landlord must undertake relevant energy efficiency improvements (those recommended in a surveyor’s report, EPC recommendations report or Green Deal advice report or any other measure which will raise the property’s rating).
Penalties can range from £5,000 to £150,000 and include publication of a public notice.
How does this affect my lease?
Existing leases are not currently affected by MEES. Even if a lease entered into on or after 1 April 2018 contravenes MEES it will still be valid and both parties must abide by its terms.
Whilst MEES do not impose any direct obligations to carry out improvement works it will impact on existing and future leases as follows:
- Dilapidations Claims: Landlord dilapidations claims may be reduced for properties which do not meet MEES including the ability to claim for loss of rent and diminution of value.
- Alterations: Where tenant works will (or may) negatively impact the EPC rating of the building it is likely to be ‘reasonable’ for landlords to withhold consent or require reinstatement at the end of the lease.
- Subletting: Tenants who wish to sublet a property will become responsible for complying with MEES as they are now themselves landlords.
- Rent review: Rent review clauses may be construed as assuming that the property is MEES compliant, even if in reality it is not. Additionally, if the right to sublet contributes significantly to the lease’s value, then MEES may be taken into consideration. Rent may also be depressed if the lease contains provisions enabling the landlord to recover the cost of complying with MEES through the service charge.