With apologies – we love a definition

Before we kick off, and with apologies for being lawyers, we should just clarify what we mean by ‘buildings’. Within the relevant regulations and guidance, ‘building’ means a roofed construction having walls for which energy is used to condition the indoor climate (i.e. heating, cooling or ventilation). And ‘building unit’ means a section, floor or apartment designed or altered to be used separately. So, in a block of flats, the flats themselves are referred to as building units and the block, as a whole, is a building. The regulations can be applied to both separately. In this edition we’ll just refer to buildings. But everything we say about a building also applies, separately, to a building unit.

AA (Accredited Assessor)

An EPC can only be produced by an accredited energy assessor – and different accreditations apply for residential and commercial buildings (and, within the commercial accreditation regime, there are different levels of accreditation). If you need to commission an EPC, it is vital you check that the assessor you appoint has the correct accreditation.

When is an EPC required?

The general rule (we’ll get to the exceptions later) is that a building will need a new EPC to be produced when it is first built and then a valid EPC will need to be in place when it is subsequently being sold or rented. This applies whether it is residential or commercial. And note that, subject to some quite precise detail, you really need an EPC in place before you start the marketing process – not just at completion of the sale or letting.

Once an EPC has been obtained it will remain ‘valid’ for 10 years unless, during that time, works are carried out which both

• change the number of parts designed or altered for separate use (e.g. dividing a single house into two flats); and
• include works to any fixed heating, hot water, air-conditioning or mechanical ventilation.

If works of that description are carried out, then the person carrying out the works will need to obtain a new EPC and provide a copy, not only to the owner of the building, but also to the local Building Control department. That new EPC will then have a 10 year life of its own. And can be used again and again, as the building changes hands, over the next decade.

The best lawyers in the world

What we would say about all these exemptions, is that their precise scope and applicability are set out in pages and pages of guidance and regulations. Most of which are pretty opaque, some of which simply don’t make sense and at least one paragraph of which appears to be a direct Google Translate of the French wording contained in an old EU Directive (notwithstanding BREXIT). So, the best lawyers in the world (i.e. us) will not always be able to give you a clear cut ‘yes/no’ answer as to whether they apply. And, in those circumstances, you might be better just to assume that they don’t (and that you need to procure an EPC) rather than expending time, effort and fees trying to argue the matter.

Relevant

What can amount to a relevant energy efficiency improvement depends in whether the building in question is residential or commercial.

In the case of residential property: A combination of the MEES Regulations and some regulations that applied to what was known as the Green Deal set out what types of improvement can be relevant energy efficiency improvements. These include things like installing air source heat pumps, fitting draught proofing or improving heating controls.

In the case of commercial property: A combination of the MEES Regulations and Table 6 of the Building Regulations Approved Document L2B set out what types of improvement can be relevant energy efficiency improvements. These are similar to, but not identical to, those that apply to residential property.

The exemptions to the rule (Part II)

We now need to look at the exemptions to the general MEES rule that a landlord is prevented from letting (or continuing to let) their building unless its energy efficiency rating is at least an ‘E’. There are seven exemptions and, in understanding how the MEES Regulations work, these seven exemptions are as important as the general rule itself.

High cost exemption

A residential landlord will only be required to undertake works if they cost the landlord less than £3,500 or can be paid for by what is known as third party funding (or a combination of the two). Third party funding describes funding schemes provided by government (such as the Green Deal when it was in force) and schemes provided by energy companies (such as what is known as the Energy Company Obligation which obliges large and medium sized energy suppliers to promote schemes to lift poorer and more vulnerable households out of fuel poverty).

7 Year exemption

A commercial landlord will only be required to implement improvement works which satisfy a ‘7 year payback test’. The formula for this test, which is set out in the MEES Regulations, is complex but, in essence, it compares the cost of implementing and funding the improvement against the saving made on energy bills for the first 7 years. The latter must outweigh the former before the landlord is required to carry out the works.

All improvements made exemption

As referred to above, only certain types of work are capable of being ‘relevant energy improvements’. If all relevant energy efficiency improvements for a building have already been carried out then the landlord (whether commercial or residential) is not required to do more – even if the building remains with a below ‘E’ rating.

Wall insulation exemption

This exemption applies to both residential and commercial property. It acknowledges that certain wall insulation systems may not be suitable in certain situation. Where the landlord has obtained written expert advice indicating that such insulation systems are not appropriate for the building in question due to its potential negative impact on the fabric or structure of the building then they will not be required to implement such an improvement.

Consent exemption

The freeholder of a building, whether its residential or commercial, will often need various third party consents to implement a relevant energy improvement. That can include planning consent from a local authority, approval of a mortgagee or cooperation from a tenant to permit access. A tenant of a building will also often need third party consents if they want to implement a relevant energy improvement. That can also include planning or mortgagee consent. And, in particular, they are likely to need landlord consent.

The MEES Regulations acknowledge that it will not always be possible to obtain those consents. And so there is an exemption where a third party consent is needed but is not forthcoming.

Devaluation exemption

An exemption from meeting the MEES minimum standard will apply where the landlord has obtained a report from an independent surveyor who is on the Royal Institution of Chartered Surveyors register of valuers advising that the installation of the proposed energy efficiency improvement would reduce the market value of the building by more than five per cent. This applies to both residential and commercial property.

New landlord exemption

In some very limited situations a person may become a landlord ‘unexpectedly’. For example, a guarantor may inherit a lease if the initial tenant has become insolvent. If that lease was a headlease then the guarantor will suddenly become a landlord. The MEES Regulations apply certain time limited exemptions in some very limited situations such as this.

Register of exemptions: more paperwork

A landlord can only rely on one of the seven exemptions if they register their details on the PRS Exemptions Register maintained by Government. With the exception of the new landlord exemption, which only applies for up to 6 months, all the other exemptions are time limited to 5 years. After that time, the landlord will need to reassess the position and, if the criteria of the exemption still apply, then re-register.

Penalty shot (or own goal)

It is fair to say the few, if any, people have been subject to enforcement action for failure to comply with the EPC and MEES requirements. That might reflect a nationwide compliance rate of 100% or it may indicate that Trading Standards Officers (who are, generally, the people empowered to take enforcement action) are busy people with more on their plates than they can handle. But, whilst failure to comply is not a criminal offence, the regulations do provide for penalties in the form of fines. These fines include:

Failure to provide an EPC to prospective tenant/ purchaser in breach of the relevant regulations.

• Residential: £200 per dwelling
• Commercial: 12.5% of rateable value (with a minimum of £500 and a maximum of £5,000)

Letting a building with an EPC rating of ‘F’ or ‘G’ in breach of relevant regulations

• Residential (length of breach less than three months): £2,000
• Residential (length of breach three months or more): £4,000
• Commercial (length of breach less than three months): 10% of rateable value (with minimum of £5,000 and maximum of £50,000)
• Commercial (length of breach three months or more): 20% of rateable value (with minimum of £10,000 and maximum of £150,000)

In addition to the fines, breach of the some of the regulations could result in what is known as a ‘publication penalty’, with the defaulter’s name being formally published on a ‘naughty list’. That could be a bit of a PR disaster. And you may find, given the lack of enforcement action so far, if you are the trail blazing defaulter who is first subjected to this penalty that you make the national press – and not in a good way.