Navigating the MEES minefield

The BPF recently called on government to give “immediate clarity” on minimum energy efficiency standards (MEES) targets for commercial buildings.

It has been over two years since a government consultation on proposed MEES changes closed and we still await a response. The BPF and others believe that the ongoing uncertainty over future regulations risks delaying the sector’s transition to net zero and are requesting: confirmation of timelines for new MEES ratings; clarity on exemptions and enforcement; and information on responsibilities of owners and occupiers.

Currently, the MEES regulations for commercial premises require an EPC rating of E or higher for any new or continuing letting. Premises with a rating of G or F are “sub-standard” and cannot (unless an exemption applies) be lawfully let. The industry anticipates that government will raise this threshold to C in 2027 and B in 2030.

To transform an E rated building to a B within the next seven years is a challenge that goes beyond changing lightbulbs. Landlords are concerned about what works should be done, whether they will be sufficient to comply with current and future regulations, how works will be funded and how to gain access to occupied premises to carry them out. All these issues take time to resolve, and the longer it takes for government guidance to be provided, the less time owners will have to get their assets in order.

This uncertainty adds to the already numerous questions our clients have about MEES. The most pressing issues are who is required to do works to improve the EPC rating and who will bear the cost. In fact, no-one is obliged to do any works. MEES don’t require specific works, nor do they require all commercial rented properties to have an EPC of E or higher. They just say it is unlawful to let or continue a letting of a property that is sub-standard. In practical terms however, it is usually the landlord doing the works because (i) the penalties fall on the landlord and (ii) generally (unless a lease states otherwise – which would be extremely rare), improvements are the responsibility of the landlord.

There is no standard rule about allocating costs and we have seen many approaches, which depend largely on the bargaining powers of the parties. A balanced and increasingly common approach is the landlord covering capital costs (whether because they consider them “improvements” or the “right thing” to do) and tenant covering operational costs.

Landlords should check whether they can rely on any exemptions.  There are a number, including consent, property devaluation, seven-year payback and “all relevant energy efficiency improvements made”. Historically, landlords used the consent exemption to avoid any MEES responsibilities, but this is becoming less common. Responsible landlords are keen to comply with MEES, so are including specific access rights to enable them to carry out MEES-related works.

Both landlords and tenants are concerned about what happens to the lease if the premises are sub-standard. There is nothing to worry about here, because a sub-standard EPC rating does not impact on the lease terms. The lease is still valid, and the landlord and tenant relationship continues just as before. There is, therefore, nothing preventing a landlord from continuing to collect rent in a sub-standard property.

The biggest risk for a landlord continuing to let a sub-standard property is receiving fines (on a sliding scale based on rateable value, starting in the range of £5k to £50k, rising to £10k to £150K after three months) and being officially “named and shamed”.

If landlords adopt at least some green lease clauses, they should be able to avoid some of the issues created by MEES going forward. We look at clauses enabling the landlord to enter occupied areas and common parts to carry out MEES related works. We also have clauses about the costs of these works, and some restrictions on what alterations and reinstatement tenants can do, where they might negatively impact on EPC rating.

Even in this period of uncertainty, there are things responsible landlords can do to address MEES. What we advise clients depends on factors such as their ESG appetite and the nature and location of their asset. Clients are also increasingly aware that tokenism could lead to accusations of greenwashing.

Key actions for responsible landlords are:

• Check which assets are currently sub-standard or likely to become so in the near future and put in place funding and a works programme to address this;
• See if any exemptions might apply and if so, whether they would want to use them;
• Include green lease clauses in letting documents and where this is not possible, engage in discussions with occupiers.

Anastasia Klein is head of ESG and a partner at Maples Teesdale