Legal Requirements for Landlords: EPCs and MEES

What is an Energy Performance Certificate (EPC)?

An EPC contains information which provides an energy efficiency rating in relation to a property’s running costs, allowing the reader to compare the energy efficiency of properties. Calculated using standardised energy usage patterns, rating is banded ranging from “A” (being the most energy efficient) to “G” (being the least).

Before the completion of a lease, it is common that the landlord supplies to the proposed tenant a valid EPC and a recommendation report. Parties may agree between themselves regarding its procurement, but the ultimate responsibility to comply with the minimum energy efficiency standard regulations (MEES) falls on the landlord.

 

What are MEES?

MEES regulations were introduced by the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 and originate from the Energy Act 2011 which contained the previous coalition government’s package of energy policies. MEES set a threshold for the minimum EPC rating that a landlord must achieve for a property; since 1 April 2018, a landlord has been unable to let or re‑let commercial property that has an EPC rating lower than “E”. Properties with an EPC rating of “F” or “G” are treated as “sub standard”.

Although non compliance with MEES will not invalidate a lease, if a landlord grants a new lease of property, or continues to let a property, that is non compliant with MEES then a landlord will expose itself to enforcement action and sanctions from the local weights and measures authorities.

There are currently no MEES compliance requirements in Scotland other than for social landlords. However, the Scottish government has recently consulted on proposals to introduce MEES for private rented sector residential properties by 2028, and to prohibit the use of direct emissions heating systems in all types of property by 2045. Details of the proposals are available on the Scottish government website.

Who is responsible for compliance?

Compliance is the primary obligation of the property owner; the head landlord/freeholder. Well versed landlords will however attempt to offset costs liability onto the tenant under the letting documents, particularly the cost of energy efficiency improvements and an indemnity for not observing MEES. Obligations can be documented in many ways but the most common is express provisions in the letting documents which clearly confirm responsibilities and liabilities, which a landlord may back up under a carefully drafted service charge regime permitting the landlord to recover costs associated with improvements and surveyor input.

 

Penalties for non compliance

Enforcement is ordinarily undertaken by trading standards officers. The financial penalties depend on how long the breach had continued prior to the date of the service of the penalty notice: 

• Less than three months: maximum penalty is the greater of GBP5000 or 10% of the rateable value of the property at the date of service of the penalty notice, up to a max of GBP50,000.
• Three months or more: the fine is the greater of GBP10000 or 20% of rateable value of the property at the date of service of the penalty notice, up to a max of GBP150,000.

 

Are there exemptions to the regulations?

In some instances, a property can be let “sub standard”.

• Third party consent – this applies if a third party has refused consent for a proposed energy efficiency improvement despite the landlord’s reasonable efforts, or the consent was granted subject to a condition with which the landlord cannot reasonably comply (for instance, a planning permission which has been refused). To rely on this exemption, this must have happened in the last five years.
• Devaluation – this is available if a report from an independent surveyor confirms that making the relevant energy efficiency improvements would result in a reduction of more than 5% in the market value of the property.
• Temporary exemptions – a landlord may be given six months to undertake works, or to register a long term exemption, during which time a landlord will not be in breach of the prohibition when:

• the landlord purchases sub‑standard property readily let;
• a lease is granted pursuant to an agreement for lease;
• the landlord is guarantor to a tenant who has become insolvent, where the lease is subject to sub tenancies so that the landlord becomes the immediate landlord to the sub tenants;
• a third party becomes an overriding tenant (eg as guarantor or pursuant to an authorised guarantee agreement);
• there is deemed creation of a new lease by operation of law;
• a lease is granted by order of the court; or
• there is a renewal of a 1954 Act protected lease.

If a landlord can establish reliance on the above, a landlord will be able to let once they have registered the exemption on the PRS Exemptions Register.

Notably, there are also instances where property does not require an EPC. Complex rules attach themselves to such exclusions, but consideration is given to the following types of property:

• properties that are to be demolished with planning permission in place;
• listed properties and those situated in conservation areas;
• properties used as a place of worship;
• an industrial site, workshop or non residential agricultural property;
• detached properties with a total floor space under 50 square metres;
• properties due to be demolished;
• properties that do not have a roof or do not have walls (for instance, car parks);
• properties that have no heating, ventilation or air conditioning equipment.

 

What are the government proposals for MEES?

Latest consultations suggest additional regulations concerning exemptions and increasing the financial penalties available on enforcement. The UK Government has also suggested a phased implementation of a “B” rating by 2030. Properties falling below this rating will be the new “sub standard”.

The following steps are envisaged (with “C” being the interim milestone):

MEES compliance (2025-2027)

• 1 April 2025 – landlords of properties within the scope of MEES must present a valid EPC.
• 1 April 2027 – properties must have a rating of “C”, or registered a valid exemption.

MEES compliance (2028-2030)

• 1 April 2028 – landlords of properties within the scope of MEES must check that the EPC remains valid and submitted to the compliance database.
• 1 April 2030 – properties must have a rating of “B”, or registered a valid exemption.

Whilst the UK Government announced in November 2023 a plan to scrap all requirements for residential landlords to meet an EPC rating of “C” or above by 2028, it is unknown as to whether a similar approach will be adopted for non domestic property.

 

What should landlords consider going forward?

MEES inevitably impact on a landlord’s ability to deal with its investment. With increased government focus on ESG policies, lack of compliance will inevitably impact valuation and rental income of the asset. To mitigate its risk profile:

• landlords should actively monitor and review the energy ratings across their portfolios alongside regulatory developments. EPCs last for ten years and for properties with a rating of “E”, a landlord should ring‑fence these assets and consider how and when these will be “future proofed”;
• landlords should obtain details of registered exemptions from the seller in a portfolio sale;
• landlords should consider their ESG presence and reputational impact of non compliance with MEES;
• landlords should consider what provisions they may wish to push for during lease negotiations. It is becoming increasingly common for landlords to reserve rights of access onto property for the purpose of undertaking EPC improvement works, to filter the cost of EPC improvement works to the tenant(s) and to demand more detailed obligations from tenants concerning the maintenance of energy performance and efficiency;
• landlords should be facilitating conversations with tenants to deal with any immediate compliance concerns for properties which are currently let and agree how costs are to be apportioned if tenants undertake alterations which warrant the issuing of a new EPC.

We are available to answer any questions that you may have on EPCs and MEES. Please contact: