The Introduction of Minimum Energy Efficiency Standards (MEES) And What This Means to You & Your Property
A brief guidance for landlords on the minimum level of energy efficiency required of let domestic properties under the Energy Efficiency Regulations 2015 with MEES as introduced April 2018.
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Introduction
The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (henceforth “the Regulations” or “MEES”) are designed to tackle the least energy-efficient properties in England and Wales – those rated F or G on their Energy Performance Certificate (EPC). The Regulations establish a minimum standard for both domestic and non-domestic privately rented property, effecting new tenancies and renewals including, periodic addendums for existing tenancies from 1st April 2018.
This guidance relates to domestic properties only
The current domestic regulations are based on a principle of ‘no cost to the landlord’, this means that landlords of F or G rated homes will only be required to make improvements to these properties where they can do so entirely using third party finance from one or more sources. However as set out prior, this is subject to change and is currently under consultation.
The minimum level of energy efficiency means that, subject to certain requirements and exemptions:
a) from the 1st April 2018, landlords of relevant domestic private rented properties may not grant a tenancy to new or existing tenants if their property has an EPC rating of band F or G (as shown on a valid Energy Performance Certificate for the property);
b) from the 1st April 2020, landlords must not continue letting a relevant domestic property which is already let if that property has an EPC rating of band F or G (as shown on a valid Energy Performance Certificate for the property).
Where a valid exemption applies, landlords must register the exemption on the national PRS Exemptions Register.
What Does This Mean?
All properties that require an EPC and are let via an assured tenancy (including assured shorthold tenancy) are required to have met the minimum EPC rating of Band E, or registered for an exemption on the PRS Exemptions Register.
Currently, the landlord would only be responsible for carrying out works outlined on the EPC or other energy efficient works at no cost, instead for the works to be financed via the green deal or other third-party finance solutions who use the Pay as your Save (PAYS) basis.
The landlord’s responsibility is to prove that works have been carried out by having a new EPC following the installation of the energy efficient measures and that the property is now Band E or above. Where the energy efficient measures do not raise the properties EPC rating to band to E or above, the landlord has to register an Exemption with the PRS Exemptions Register, providing evidence of all works being carried out and that no further works can be done under the green deal or third party (PAYS) finance.
What is the Green Deal?
The Green Deal enables households and property owners to take out loans to pay for energy efficiency improvements in their homes or rental properties, with repayments made through the electricity bill for the improved property. Repayments are made on a “Pay As You Save” (PAYS) basis: after the improvement has been made, the household begins to save energy, their energy bills are less than they would have been without the improvement, and these savings are used to repay the loan. The finance mechanism includes a principle called the “Golden Rule”.
The ’Golden Rule’ states that the first year’s repayments must not exceed the estimated first year saving, and the overall repayment period must not exceed the lifetime of the measures installed. A mechanism exists for owners to pass the loan on to future occupants of the property. Green Deal finance is one way that landlords can meet their statutory requirements with no up-front cost: the electricity bills at the rental property (with a Green Deal charge attached) are paid by the tenant rather than the landlord.
A tenant who pays the Green Deal loan for as long as they pay the electricity bill at the property should enjoy energy bill savings equal to or greater than the charge.
What Exemptions are there?
Please note that any exemptions from the prohibition on letting substandard property which are claimed by a landlord may not pass over to a new owner or landlord upon sale, or other transfer of that property. If a let property is sold or otherwise transferred with an exemption registered, the exemption will cease to be effective and the new owner will need to either improve the property to the minimum standard at that point, or register an exemption themselves where one applies, if they intend to continue to let the property.
1) Where all the ‘relevant energy efficiency improvements’ for the property have been made (or there are none that can be made) and the property remains sub-standard (Regulation 25)
The requirement to meet the minimum level of energy efficiency (EPC E) does not apply where a landlord has made all the relevant energy efficiency improvements to the property that can be made (or there are none that can be made), and the property remains sub-standard
If this is the case, then the situation must be registered on the National PRS Exemptions Register. The exemption will last five years; after this time, it will expire, and the landlord must try again to improve the property’s EPC rating to meet the minimum level of energy efficiency. If this cannot be achieved, then a further exemption may be registered.
2) Where a recommended measure is not a “relevant energy efficiency improvement” because the cost of purchasing and installing it cannot be wholly financed at no cost to the landlord (Regulation 25(1)(b))
The prohibition on letting property below an EPC energy efficiency raging of E does not apply if a landlord has been unable to access relevant ‘no cost’ funding to fully cover the cost of installing the recommended improvement or improvements.
If this is the case, then the situation must be registered on the National PRS Exemptions Register. The exemption will last five years; after this time, it will expire, and the landlord must try again to improve the property’s EPC rating to meet the minimum level of energy efficiency. If this cannot be achieved, then a further exemption may be registered.
3) Third consent exemptions (Regulation 31 and Regulation 36(2))
Depending on circumstances, certain relevant energy efficiency improvements may legally require third party consent before they can be installed in a property. Such improvements may include external wall insulation or solar panels which can require local authority planning consent in certain instances, consent from mortgage lenders, or other third parties.
Where third party consent is required for a particular measure the landlord must identify this requirement and make, and be able to demonstrate to enforcement authorities on request, ‘reasonable effort’ to seek consent.
It is not practical to provide an exhaustive list of all situations where third party consent will apply, however landlords should also consider is whether or not they have the right to carry out improvement works under the terms of an existing tenancy. Landlord rights of entry to undertake work on a property typically only extends to the carrying out of repairs or maintenance, rather than making ‘improvements’.
As a majority of the measures landlords can install to meet the minimum standard will be considered improvements, a landlord may not have an automatic right of entry to install the measure or measures, and tenant consent may be necessary
4) Property devaluation exemption (Regulation 32 and Regulation 36 (2))
An exemption of five years from meeting the minimum standard will apply where the landlord has obtained a report from an independent surveyor who is on the Royal Institution of Chartered Surveyors (RICS) register of valuers advising that the installation of specific energy efficiency measures would reduce the market value of the property, or the building it forms part of, by more than five per cent.
This exemption provides a safeguard for landlords in situations where energy efficiency measures might significantly impact upon the property’s commercial value, although the government expects this exemption will apply infrequent.
How Do I Know What To Do?
Minimum Standards Regulations Compliance Decision Process
Enforcement of MEES
The enforcement of the new regulations is the responsibility for every local authority. Each local authority is responsible for compliance with the minimum level of energy efficiency provisions within their geographic boundaries.
It is proposed that should a property come to the attention of a local authority that they should not only enforce the penalties which will be set out below, but to also visit the property and carry out an inspection using the “Housing health and safety rating system” (HHSRS). This is a system by which a local authority has the right to inspect the property for 29 health and safety points, including Damp and Mould Growth, Excess Cold, Asbestos, Lighting, Noise, Falls associated with baths, uneven surfaces, stairs and much more. The local authority can enforce works to be carried out, even to the extent of undertaking the work and registering a charge on the property. Unfortunately one of the impacts caused by the Deregulation Act 2015, which came in to effect in October 2016 means that should a council serve notice to a landlord (classed as a “Relevant Notice of Improvement”) a landlord would be unable to serve either a section 21 or a prescribed 6a notice to their tenant.