MEES: What happens if your commercial property isn’t compliant on 1 April 2018?
Allocation of Fine-Generated Revenue
From 1st April 2018 the Minimum Energy Efficiency Standards (MEES) legislation has made it unlawful to let buildings – or renew existing leases – in England and Wales which do not achieve a minimum Energy Performance Certificate (EPC) rating of ‘E’.
The impact of the changes is being felt across all commercial property sectors. The focus around this legislation so far has been for investors, owners and Asset Managers and their agents to understand what EPCs they have, the accuracy of these and the risks presented. Until recently, there has been little communication as to how the regulations will be enforced and how the resulting penalties will be structured; surprisingly this information is still unclear despite being past 1st April 2018.
The latest guidelines indicate that penalties for renting out a non-compliant unit or property will be up to £10,000 or 20% of rateable value (up to a max. of £150,000), whichever is higher. As this approaches we are starting to get views about who will issue these fines and who will capture the revenue they generate.
Unofficially, according to the Department for Business Energy and Industrial Strategy (BEIS), it looks to be local authorities who will issue penalties and also get to keep any revenues arising from the charges. The key point to note on this is that this will therefore been seen as an income stream and definitely give the local authorities an incentive to allocate some resources to MEES compliance whereas previously, whilst local authorities have been responsible, revenue was passed back to the Treasury. It is therefore no surprise that a number of local authorities are being proactive in their thinking about enforcement of MEES.
A more official stance on the situation can be gained from the guidance published by DBEIS in Feb 2017, entitled The Non-Domestic Private Rented Property Minimum Standard.
Every local weights and measures authority (LWMA) is the ‘enforcement authority’ for their area, and will be responsible for enforcing compliance with MEES provisions within their geographic boundaries. A representative or authorised officer of the LWMA may carry out the enforcement activities. Enforcement authorities can choose which function they wish to use to enforce the minimum standards regulations.
In short Local Authorities will be able to police this as they see fit and given that they can generate income, we suspect this will be enforced robustly.
A compliance notice may be issued when a landlord is in breach of the regulation by letting a sub-standard property or they have been in breach at any time in the previous 12 months. The compliance notice will request information from the landlord which will help to decide whether that landlord has in fact breached the regulation.
The fact that it can be served on a landlord up to 12 months after the suspected breach means that a landlord may receive a compliance note after they have sold the property.
The Guidance Document states: “Where an enforcement authority is satisfied that a breach of the regulations has occurred they have a number of penalty options at their disposal” and the penalties have been set out as follows:
Data source: The Non-Domestic Private Rented Property Minimum Standard report from The Department for Business, Energy & Industrial Strategy.
The maximum penalty amounts apply per property and per breach of the regulations.
A publication penalty will allow the enforcement authority to publish some details of the landlord’s breach on a public register. This will be left visible for a period determined by the local authority which will be no less than 12 months.
As of 1st April 2018 the enforcement authority may now serve a penalty notice on the landlord where they are satisfied that the landlord has breached the MEES legislation in the last 18 months. Again, this could therefore be after a property is sold.
Penalties can be withdrawn or reviewed by the enforcement authority. If the penalty notice is issued however then the landlord has the right to appeal and also has access to a First-tier tribunal system.
In summary, we see MEES being actively monitored and penalties being issued in order to generate income for Local Authorities. Given that these are listed publicly, there is again a clear driver to be managing EPCs now.
If you would like to discuss your asset plans and EPC strategy please do get in touch, we’ll be happy to help.