Backdating the Term Commencement Date of a Lease Will Not Avoid the MEES Regulations
What are the MEES Regulations?
The Minimum Energy Efficiency Standard (MEES) was introduced in March 2015 by the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015. The MEES Regulations will come into force as of 1st April 2018.
At present commercial buildings have an energy efficiency rating between A and G. Under the MEES Regulations, as of 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.
What if the term commencement date of a Lease is earlier than the 1 April 2018 deadline?
The MEES regulations relate to prohibiting the granting of new tenancies of sub-standard properties on or after 1 April 2018. Therefore it does not matter from when the term is stated to commence. Consequently if a lease is granted on 2 April 2018 with a term commencement date of 1 January 2018, the landlord will still need to comply with the MEES Regulations.
It may therefore be beneficial for Landlords of sub-standard properties (those which have an EPC rating of below an E rating) who are in the process of negotiating leases to consider hurrying things along so that completion of the lease takes place prior to 1 April 2018 deadline.
However, it is also important to note that even if the lease is completed before 1 April deadline, the energy efficiency rating of a sub-standard property cannot be completely ignored.
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. These fines can be substantial, both in monetary terms and also in relation to the Landlord’s own reputation.
What are the penalties for non-compliance?
The penalty for renting out a property for a period of fewer than three months in breach of the MEES Regulations will be equivalent to 10% of the property’s rateable value, subject to a minimum penalty of £5,000 and a maximum of £50,000. After three months, the penalty rises to 20% of the rateable value, with a minimum penalty of £10,000 and a maximum of £150,000.
The penalties for non-compliance could make a vast financial impact on Landlords and therefore they must begin making preparations for the regulations to come into force on 1st April 2018. The EPC rating of the premises should be checked during the early stages of the transaction and if the current rating is below E then action should be taken to ensure that no breach of the MEES Regulations occurs.
If you need any advice, contact our Specialist Team on 0800 088 6004.