All England and Wales landlords and tenants need to be ready for the changes to the Minimum Energy Efficiency Standard (MEES) and Energy Performance Certificate (EPC) requirements on 1 April 2023.

Landlords are currently required to ensure that their properties have a minimum EPC rating of E or above before they are able to grant a new tenancy unless certain exemptions apply. This has been the case since 1 April 2018. The significant change from 1 April 2023 will be that all landlords must ensure that the properties that they are letting meet the minimum EPC rating. This means that all existing and new tenancies are subject to the requirements unless there is a valid exemption.

How will this affect you?

Landlords should be reviewing their stock to identify any commercial properties that fall beneath the minimum standard and either registering a valid exemption or carrying out the necessary improvement works before 1 April 2023. If neither is done before the deadline, landlords can face substantial financial penalties ranging from £10,000 to £150,000 for each property. There are proposals for the requirements to be restricted again by 2027 to an EPC minimum rating of C, so it would be sensible for this to be kept in mind when planning and making improvements.

What are the exemptions?

he relevant exemptions below last for five years and must be registered on the Private Rented Sector (PRS) Exemptions Register; they include the following:

• “All relevant improvements made” exemption- all improvements up to the cost cap of £3,500 inc VAT have been made or there are no more improvements possible.
• “High cost” exemption- if the lowest cost improvements would be more than the £3,500 inc VAT cap.
• Wall insulation improvements exemption- the only improvements are cavity wall, external wall or internal wall insulation (for external walls) and expert advice confirms that these would affect the structure of the property.
• Third party consent exemption- the improvements need another party’s consent such as a tenant or freeholder and you cannot obtain the consent or conditions are imposed that cannot reasonably be complied with.
• Property devaluation exemption- the improvements would devalue the property by more than 5%, this must be evidence by a Royal Institution of Chartered Surveyors (RICS) Surveyor.

After five years, the landlord must assess if the relevant improvements can be made and register a further exemption if not.

If the property acquired is already sublet, there is a temporary exemption available giving the landlord six months to carry out the necessary improvements to bring it up to the Minimum EPC standard.

A registered exemption cannot be transferred to a new landlord, so if the property is sold a new exemption will need to be registered.

Who is responsible?

It is clear that the obligation is on the landlord to ensure properties meet the minimum standard, however there may be provisions within your leases that allow you to recover some of the costs of the required improvements. It must be noted that if a property is sublet, the tenant will become a landlord for the purpose of the MEES rules.

In order to avoid significant financial penalties, landlords need to review their stock and identify any properties that have an EPC rating lower than E and take action to either make the relevant improvements or register an exemption before the deadline of 1 April 2023. 

How Capsticks can help

Landlords will need to consider each case individually, so that a viable solution can be found. One size won’t fit all. Please get in touch if you would like us to review your leases and advise on your responsibilities. 

If you have any queries around what's discussed in this article, and the impact on your organisation, please speak to Zayna Ibrahim or Mike Regan to find out more about how Capsticks can help.