What does new MEES legislation mean for property investors?09.07.2018
What is the MEES?
The Minimum Energy Efficiency Standard (MEES) came into force on 1 April 2018, requiring all landlords and property owners to ensure their residential and commercial properties meet a minimum Energy Performance Certificate rating of E. This means that landlords are now no longer able to renew existing tenancies, or start any new ones, for any property that doesn’t hold the minimum rating and, as of 1 April 2020, will need to ensure that any property with existing tenancies also meets this standard. We discuss how the MEES may affect investors going forward.
Who does the MEES affect?
For starters, the responsibility is very much on owners to ensure their properties meet the minimum EPC standard or they may face heavy penalties, starting at £2,000 for residential properties and rising to as much as £150,000 for commercial properties. For investors with a large portfolio, this will involve a heavy review of properties with existing tenancies to determine where improvements are needed to be ready for April 2020, and will need to have been identified as part of an EPC report, surveyor report or Green Deal report.
As well as potential fines, landlords and investors will likely be responsible for bearing the cost of energy efficient improvement works, despite the initial plans for Green Deal funding to cover the costs, so, for any investors considering property that doesn’t meet the minimum EPC rating, it’s important to deliberate the additional expenditure this might involve.
Whilst the MEES will not affect tenants in terms of responsibility for compliance, they should be aware that their residency could experience some disruption. This could come in the form of energy efficiency work a landlord may need to carry out (if they have permission to do so), affecting both commercial and residential tenancies, or the prohibitions this may suddenly enforce on commercial residents, such as retailers, affecting the way they fit out their units.
MEES compliancy: Undesirable properties and acquiring sub-standard property
For investors acquiring tenanted property that doesn’t meet the MEES, a temporary exemption will need to be obtained to grant time for any improvement works needed. Additionally, the new legislation could see some owners struggling to sell on sub-standard property, as the additional improvement work will be deemed undesirable to some potential investors.
Furthermore, buyers may find they face challenges finding the right lender, as it’s likely lenders will be concerned around how sub-standard EPC ratings will affect capital and rental value, as well as the need to future-proof properties for security purposes.
With less than two years until MEES legislation is enforced across all property tenancies, it is vital that any landlord, investor or potential buyer is well-prepared and fully aware of the implications before investing in sub-standard property. Reviewing your property and making the necessary improvements earlier on ensures you are future-proofing your investment.
If you aren’t sure how the Minimum Energy Efficient Standard affects you as a landlord or investor,and we will be happy to advise you.