From 1 April 2018 it will be unlawful for landlords to grant leases on properties with ‘sub-standard’ EPC ratings of F or G, with on-the-spot fines of up to £150,000 for those who do not comply. Robert Diamond and Geoff Reed, Sustainability Specialists at Ingleton Wood, say that landlords now have a finite opportunity to secure their position and prevent tenants from using the regulations to their advantage.
The new Minimum Energy Efficiency Standards (MEES) that come into force on 1 April are set to have a fundamental impact on the commercial leasehold market.
Where tenants can prove their property fails to meet the regulations they may look to exploit this fact and use it to their advantage.
- Dilapidations – tenants could argue a landlord’s requested dilapidations work will still leave the property ‘unlettable’ and thus their works rendered valueless
- Rent reviews – tenants could stipulate that any rent review should be based upon the market value of a property which is now unlettable under the MEES regulations, arguing for nil increases or potentially rent reductions
- Lease negotiations – either in a lease renewal or new lease negotiations, tenants could seek to suppress rental sums where they can prove a landlord’s property poses an unlettable liability
- Landlord improvement works – tenants, knowing that the landlord needs to undertake energy efficiency improvements, may argue for:
- A rent holiday for the time it takes to complete the works
- Compensation for disruption caused to their business
- No applicable service charge contributions because the works are improvements
In addition, significant changes to EPC assessment and several revisions to Part L of the Building Regulations mean that many EPCs could be downgraded. As a result, properties which currently comply with MEES may not always do so in the future.
Hence, whilst Government statistics state that just 18% of commercial properties have EPCs of F or G, of increasing concern is the 47% of properties that are currently within the D and E bracket and could fall below the new standard upon reassessment.
It is therefore important for landlords to consider both the short and long-term impact of MEES and to ensure they have taken the appropriate action to protect their portfolio.
To find out more about how MEES could affect your property or for advice on how to meet the new standards, contact Ingleton Wood at email@example.com.