MEES Regulations From A Tenant’s Perspective
Since April 2018 the Minimum Energy Efficiency Standard (MEES) have been in place – putting obligations on Landlords but also having an affect on tenants to.
The MEES Regulations came into force as of 1st April 2018 and at present commercial buildings have an energy efficiency rating between A and G.
Under the MEES Regulations, since 1st April 2018 it will be unlawful for a landlord to renew an existing tenancy or grant a new tenancy of a property with an EPC rating of below an E rating unless an exemption is registered.
If a landlord breaches the MEES Regulations it will not affect the validity of the tenancy, but the landlord could be liable for a fine. So, why should tenants care about the MEES Regulations?
If the Tenant Wants to Sub-let
Sub-leases will also fall under the remit of the MEES Regulations. Therefore, if a tenant has a lease for a sub-standard property, it will not be able to grant a sub-lease of that property unless the premises are improved to at least an E rating, or unless the tenant has registered a valid exemption.
In order to bring the rating of the premises up to an E rating, works may need to be carried out and this may involve the tenant applying to the Landlord for their consent to such works. Where this is not forthcoming, it may be possible for the tenant to try and register an exemption which will enable them to let the property without improving it to an E rating.
If the Landlord Requires Access to Carry Out Works
From 1 April 2020 (for domestic properties) and 1 April 2023 (for non-domestic properties), the prohibition on continuing to let a sub-standard property will be brought in. This means that if there is a valid EPC in place on 1 April 2020 (for a domestic property) or 1 April 2023 (for a non-domestic property), and this shows that the property is sub-standard, the landlord will need to show and register a valid exemption. If it does not, it will be in breach of the MEES Regulations and could be fined.
Depending on the type of works that need to be undertaken, the landlord may require access to the tenant’s demised premises in order to carry out these works. Unless the lease reserves a right of access for the landlord to carry out such works, the landlord will need to rely on the tenant granting access. This may be difficult as some tenants may refuse access on the basis that it would disrupt their business. Other tenants may be willing to grant access in exchange for something beneficial for them for example, if the landlord were to provide a rent free period or alternative premises for the duration of the works instead.
If the Landlord Looks to Charge Tenant for the Cost of the Works
The landlord may look to charge the tenant for the cost of any required energy improvement works through the service charge. The landlord’s argument could be that the tenant will benefit from having reduced energy bills to pay once the works have been carried out. However, the tenant’s view is most likely going to be that the landlord will be improving the overall value of its investment and future prospects of letting the premises and therefore believe that the landlord should pay for the cost of the works.
It will depend on each individual lease and the service charge provisions therein as to whether the landlord can validly look to charge the tenant for any required improvements. Therefore tenants should check the service charge provisions of their leases carefully so that they do not end up covering the costs for improvement works that may be of little benefit to them, particularly if they only have a short term interest in the premises.
Rent Review
There may be a provision in the lease which prevents the tenant from carrying out any works that could reduce the EPC rating of the premises. However landlords should consider the consequences of including such a provision as this may have a negative impact on rent review.
It is also important that tenants carefully review the lease and in particular the rent review provisions. The inclusion of an assumption that the premises will have an EPC rating of at least E could lead to the tenant paying a higher rent than the premises should really attain.
Reinstatement at the End of the Term
If the tenant has carried out works to improve the EPC rating of the premises during the term, the landlord will want to benefit from the improved EPC rating. Therefore at the end of the term reinstatement may not be required.
Dilapidations
The landlord may be required to carry out works to improve the EPC rating at the end of the term, if the property is sub-standard, in order to allow the landlord to lawfully let the premises. Such improvements could make any repair works put upon the tenant under the lease unnecessary. The tenant should therefore take advice on the effect of any such works on any dilapidations claim.
Therefore although from first glance it would appear that the MEES Regulations are a matter for landlords to be concerned with, it is increasingly clear that tenants should not ignore the MEES Regulations themselves. Any provisions in leases dealing with the MEES Regulations cannot be viewed in isolation. The impact that the regulations will have will also affect other aspects of the lease, for example in relation to rent review, dilapidations and reinstatement, and these all need to be considered.