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Who pays for MEES compliance?

The MEES (Minimum Energy Efficiency Standards) regulations have been drawn up to enhance the energy performance of UK buildings, but what are the requirements?

How to recoup the cost of enhancing energy efficiency.

The Minimum Energy Efficiency Standards (MEES) Regulations — which came into force on 1st April 2018 — aim to enhance the energy efficiency of buildings in England and Wales. These rules will also play a role in helping the UK reach its legislative target of drastically reducing CO₂ emissions from all buildings.

MEES dictates that landlords and owners of properties — typically with tenancy leases of more than 6 months but less than 99 years — must ensure their properties have a minimum energy efficiency standard (EPC rating E) before new or renewed leases can be let lawfully.

The regulations apply to commercial and residential properties. If the regulations are not adhered to, it will be unlawful to market properties until they are adequately upgraded.

Exemptions to the regulations

There are current exemptions which could mean that landlords do not have to comply with the regulations:

  • If all cost-effective energy efficiency improvements have been made within a seven-year payback, and it still doesn’t achieve the standards.
  • The inability to obtain third party consent.
  • Devaluation of a property by 5% if energy efficiency improvements were carried out.

Using these exemptions, however, is regarded only as a short-term solution. Many business landlords and property owners accept that there will be a need to comply with the required minimum energy efficiency standard.

Spending time and money on efficiency measure will improve a building’s performance in the future. This long-term thinking is a more sustainable approach to property management.

Who pays for improvement works?

Improvement work might include:

  • More efficient heating systems, using smart controls
  • Building insulation, such as external wall and loft insulation
  • Improved windows and doors
  • Other energy-saving measures, such as energy-efficient lighting

Improving inefficient living spaces means tenants could — and very likely will — pay less overall for energy bills.

Who pays for these enhancements is a tricky question. It often depends on the provisions in place for an existing lease, or the provisions to be included in a new lease.

1. Renewing existing leases

The general view is that for many existing leases, it will be difficult for a landlord to argue that it is a tenant’s obligation to repair a property.

Some costs may be recoverable through service charge provisions, depending on the lease. For example, if a boiler needs replacing, a more energy-efficient boiler can be purchased via the service charge. However, unless service charge provisions allow a landlord to recover the cost of improvements, as opposed to repair, the cost of many energy efficiency improvement works are less likely to be recoverable.

2. New leases

As yet, there is no standard minimum energy efficiency provision in a lease. There is also a risk that any standard energy efficiency measures specified without consulting an expert could have a negative impact on the value of the lease.

In addition, many tenants are currently including a ‘carve-out provision’ in any new lease they negotiate, to make it clear that all responsibility for complying with the regulations lies with the landlord or property owner.

Further considerations

There are other things to consider. For example, landlords can increase rental and asset value by making energy efficiency improvements and combining these with other refit upgrades. Investors and developers may see acquisition costs fall for properties currently sitting below the minimum standard. This may add to the attractiveness of refurbishments for new builds in areas like London, where the commercial market continues to perform strongly.

How we can help

Centrica has the expertise to develop, deliver and integrate energy efficiency strategies into real estate operations. Centrica can help you to achieve genuine carbon reductions and cost savings.

Our energy reduction programmes starts by uncovering what can be achieved in a building to reduce costs, and enhance efficiency. We then establish what can be achieved in the immediate future, and establish targets to work towards.

We support landlords and property owners through the implementation of energy efficiency measures. We install equipment, deliver behavioural change programmes, and help you to monitor energy performance so that maximum savings can be achieved.

Our full MEES compliance service includes:

  • Advice on the legislation and its implications.
  • Assessment of current energy efficiency and energy performance risk, across your portfolio and for individual assets.
  • Production of a bespoke Energy Efficiency Plan for your buildings, to implement any necessary improvements. The Energy Efficiency Plan will include fully-costed investment grade proposals for achieving the minimum standards.
  • Negotiations between landlords and tenants, regarding the completion of projects.
  • Procurement and management of necessary improvement works.
  • Providing energy performance reports and ratings for statutory compliance, and for marketing purposes.

To find out more and MEES, and to better understand what improvements you can make to your properties, get in touch today.

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