Minimum Energy Efficiency Standards (MEES) Regulations – Implications and considerations for existing commercial tenants
Marcus Francis, a Partner in our Real Estate team, considers how the MEES Regulations can impact tenants of commercial properties
The MEES Regulations made it unlawful for landlords to grant new leases of commercial property with EPC ratings of F or G from 1 April 2018. From 1 April 2023, landlords can no longer lawfully continue to let commercial properties with an EPC rating of F or G. Certain exemptions apply as referred to in our article here: https://www.fsp-law.com/changes-to-energy-performance-certificates/
The EPC rating for any building (where an EPC has been prepared) can be found here: https://www.gov.uk/find-energy-certificate
Implications and considerations for tenants of commercial properties with an EPC rating below E
- Higher energy costs – a sub-standard EPC rating means the building is less energy efficient which will most likely mean higher heating bills.
- No rights to terminate or reduce rent – a breach of the MEES regulations does not give tenants the right to terminate nor does it allow them to pay a reduced rent.
- Penalties for landlords – a landlord that fails to carry out works to improve the energy efficiency of a building to achieve a rating of E or above may incur financial penalties – this should motivate them to do what is necessary.
- Higher service charge – leases may allow for the recovery of improvement works or works required by statute.
- Allowing access – leases may provide for the landlord to have access to carry out improvement works and such access may interrupt the use and enjoyment of the property.
- Reinstatement – landlords may prefer that tenants do not reinstate works that they have undertaken during the lease term if they have improve the energy efficiency of the building.
- Rent review – the EPC rating of the building may have an impact on rent review.
- Sub-letting – if commercial tenants sublet they will be subject to the MEES Regulations such that if the property is below an E rating it will be unlawful to sublet.
EPCs and the MEES Regulations are here to stay. They are continuing to impact the world of commercial leasing and with good reason. We would expect the regulations to tighten further and with good reason as they should help to drive the decarbonising agenda and help to reduce occupier energy costs at the same time.