What exemptions exist for MEES (Non-Domestic Buildings)?

Whilst the exemptions are relatively straight forward, applying them is more complex and can also involve understanding the separate regulations that apply to both Energy Performance Certificates and the Minimum Energy Efficiency Standards. There are some organisations suggesting that landlords can easily avoid improving their buildings by claiming an exemption. Our experience is that this is more difficult than it first appears and could easily cost more than improving the building to meet the standards.

Exempt buildings and tenancies

Not all buildings and tenancies fall within The Energy Efficiency (Private Rental Property) (England and Wales) Regulations 2015. The MEES do not apply to:

Buildings that have not been legally required to have an EPC. These can include non-domestic buildings with a low energy demand, some places of worship, some listed buildings (see our specific notes on this topic), temporary properties and holidays lets.
Buildings without a valid EPC. This would include buildings where the EPC is over ten years old when it is relied upon for the MEES regulations and those where an EPC has never been completed.
Buildings only with a voluntary EPC. An EPC may have been lodged for any number of reasons. EPCs completed for purposes other than the sale or let of the building, including those lodged in a mistaken understanding that one was required, are known as voluntary EPCs. A building is only subject to MEES if the EPC was legally required. NB: There is currently no way to tell this from the EPC itself and so you will need to know the history of whether or not the building has legally required an EPC.
Short tenancies. This applies to tenancies of less than six months with no right of renewal.
Long tenancies. This applies to tenancies of over 99 years.

Exemptions from making improvements

There are a number of circumstances where an exemption or multiple exemptions from making improvements can be claimed. Where an exemption of this type is claimed, it may be possible to continue to rent out a substandard property. However, all exemptions of this nature must be lodged on the PRS Exemptions Register.

Additionally, it should be noted that specific supporting evidence is required before registering an exemption on the PRS Exemptions Register. We can provide specialist advice in this area as part of our service but would always caution clients that meeting these requirements can cost significantly more than making improvements to meet the MEES. This will obviously depend upon the building and the improvements required but changing a few lights will likely be cheaper than obtaining professional services to prove a property will be devalued for example.

Registered exemptions are also non-transferable. At best they are valid for a maximum of five years but a change in tenant or sale to a new landlord will normally mean the process (and costs involved) will have to be repeated. Only then can new exemptions be registered. There are also significant penalties for making a false or misleading declaration on the PRS Exemptions Register.

The main exemptions from making an improvement are:

No improvements are possible – Where independent experts conclude that it is impossible to make the improvements suggested on the EPC as they are physically incompatible with the construction of the property or would damage it.
Devaluation of the property – You are not required to make an improvement where an independent surveyor determines that making it would devalue the property by more then 5% of its current market value.
Third Party Consent is refused – Where there is a sitting tenant you might complete the formal process required in offering to improve the property and consent may be withheld. Equally, you may require consent from a superior landlord, a bank or building society or the local authority which may be reasonably refused. However, you will have to demonstrate that you have applied for permission and have tried to accommodate any reasonable restrictions that they have placed upon you before you can claim this exemption.
The Seven Year Payback Test – It is expected that any improvement made will recoup its cost within seven years from the savings that will occur in the subsequent energy bills. The Government has defined a specific methodology for calculating this and the guidance advises most landlords to engage the services of a competent professional to perform these calculations on their behalf. If it can be demonstrated that the improvement does not meet this requirement an exemption can be claimed.

Please note that every suggested improvement must be considered individually for the purposes of claiming exemptions. It is therefore highly likely that, even where some improvements may be subject to exemptions, others will not. In this situation, some improvements to the building will still need to be made.

What are the penalties for non-domestic buildings?

The regulations set out the penalties for non-compliance with the Minimum Energy Efficiency Standards. For non-domestic properties (shops, offices, industrial & agricultural buildings and other non-dwellings) they are:

Letting a sub-standard property for less than three months when the penalty notice is served – a fine not exceeding the greater of £5,000 or 10% of the rateable value up to a maximum of £50,000 and publication of the penalty.
Letting a sub-standard property for three months or more when the penalty notice is served – a fine not exceeding the greater of £10,000 or 20% of the rateable value up to a maximum of £150,000 and publication of the penalty.
Registering false or misleading information in relation to an exemption – a fine not exceeding £5,000 and publication of the penalty.
Failure to comply with a compliance notice – a fine not exceeding £5,000 and publication of the penalty.

Where can I find more information about MEES?

Original Sources

There are lots of independent sources of information about the new Minimum Energy Efficiency Standards (MEES). However, we have found many seem somewhat misleading and/or hold a significant bias. Here at Rowleys Commercial Energy Assessments Limited we believe it is important to provide information that is as accurate and unbiased as possible to enable those affected to form their own opinion as to the actions they should take. As such, we would refer you to the original regulations and the official guidance published by the Government. These are the same sources that we primarily rely upon when advising our clients.

Guidance for non-domestic properties – click here

Guidance for domestic properties – click here

Secondary Sources

Having read the original sources you may wish to consider further analysis. The articles below are publicly available and offer some analysis of particular aspects of the standards. Please note that we cannot accept any responsibility for the accuracy or content of external sites.

The Guardian – 5 Feb 2015

Residential Landlords Association

Pinsent Masons LLP

Bradley Mason LLP – 14 March 2017

Michelmores LLP – Solicitors (Application to listed buildings)

Bond Dickinson LLP – Solicitors (Exploration of exemptions)

What are the Minimum Energy Efficiency Standards (MEES)?

The Minimum Energy Efficiency Standards (MEES) for England and Wales are set out in The Energy Efficiency (Private Rental Property) (England and Wales) Regulations 2015. These regulations were made as directed by The Energy Act 2011. Scotland has its own system for improving the energy efficiency of buildings which includes the Section 63 requirements for large non-domestic properties.

These regulations, providing only for a few specific exemptions, require that all privately rented properties must meet of exceed the minimum standards set. This is established in terms of the EPC rating for the property and has initially been set at an “E” rating. As the regulations take effect it will be increasingly difficult to let properties with an “F” or “G” rating without first improving them.

What are the legal implications of MEES?

We know our limitations and we are specialists in energy efficiency. As such we are not in a position to provide legal advice. Whilst we can highlight some of the issues that you may face, we’re sorry but you will need to obtain specialist legal advice to fully understand the legal implications of MEES on your portfolio.

However, this is a big issue and you will find lots of discussions about possible implications on the Internet and in the media. We have identified some below:

UK Green Building Council Article

Residential Landlords Association

Are Listed Buildings exempt?

There is a lot of confusion about exemptions relating to listed buildings and buildings within a formally designated conservation area. Firstly, the exemptions that exist appear to vary between administrations in the UK and are different for different forms of assessment. Secondly, the supporting guidance, particularly in England & Wales, is regularly updated and can appear inconsistent or incomprehensible.

Air Conditioning Energy Assessments & Display Energy Certificates

Dealing first with these two assessments, the need for compliance is not affected by the historic nature or otherwise of the building. As such, no exemptions from the requirements for these assessments exist specifically for buildings that are listed or in formally designated conservation areas.

Listed buildings and those in formally designated conservation areas are treated as any other building is treated and require Air Conditioning Energy Assessments (ACEAs) and Display Energy Certificates (DECs) if they meet the other qualifying criteria.

Buildings in Scotland

The Scottish Government has not attempted to exempt listed buildings or buildings in formally designated conservation areas from their regulations for energy efficiency. Instead, they have taken an approach where an assessor is required to consider the impact of improvement measures and their appropriateness for the specific building in question. As such, no exemptions from the requirement for an Energy Performance Certificate exist specifically for buildings that are listed or in formally designated conservation areas. [Click here to see guidance]

Listed buildings and those in formally designated conservation areas in Scotland require Energy Performance Certificates (EPCs) and Section 63 Action Plans if they meet the other qualifying criteria.

Buildings in England & Wales

Put politely, the situation for buildings in England and Wales is about as clear as mud. The wording in the current regulations is taken directly from the European Directive and says “buildings officially protected as part of a designated environment or because of their special architectural or historical merit, in so far as compliance with certain minimum energy performance requirements would unacceptably alter their character or appearance.”

When these regulations were enacted on 9th January 2013, it was generally accepted that listed buildings were exempt from the requirement for an EPC for sale or let although it was acknowledged that they would still require an EPC in other circumstances (e.g. Green Deal). This belief was re-enforced by guidance published by Historic England which includes the statement “An Energy Performance Certificate (EPC) is a legal requirement when building, selling or renting a property. However, there are exemptions for certain types of building and since January 2013 listed buildings have been exempted from the need to have an EPC.” However, Historic England’s Terms and Conditions include the usual disclaimers regarding their interpretation of the law in that the position stated was just their interpretation and that they accept no liability for its accuracy. In the absence of enforcement action or legal precedents being set, much discussion has continued both in and out of the legal community with differing interpretations resulting.

Moving forward to the latest guidance to come from The Department of Business, Energy and Industrial Strategy, the UK Government Department which now has responsibility for EPCs. Issued in February 2017, this update is contained within the guidance for landlords and enforcement authorities on the minimum level of energy efficiency required to let non-domestic property under the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015. The advice, published in Chapter 1 on page 19 is shown below:

“There is a common misunderstanding relating to listed buildings and whether they are exempt from the requirement to obtain an EPC. Listed properties, and buildings within a conservation area, will not necessarily be exempt from the requirement to have a valid EPC and it will be up to the owner of a listed building to understand whether or not their property is required to have an EPC. Where a listed privately rented non-domestic property, or a property within a conservation area, is required to have an EPC, that property will be within scope of the minimum energy efficiency standards.

“As noted at 1.3.3 above, an EPC is not currently required for a listed property or building within a conservation area when it is sold or rented in so far as compliance with minimum energy performance requirements would unacceptably alter its character or appearance. Examples of energy performance measures which may alter character or appearance (or as a minimum are likely to require local authority planning permission to install on a listed building) include external solid wall insulation, replacement glazing, solar panels, or an external wall mounted air source heat pump. Where character or appearance would not be altered by compliance with energy performance requirements, an EPC may be legally required.

“If an owner or occupier of a listed building is unsure about whether their particular property is or is not required to have an EPC, appropriate advice should be sought at the earliest opportunity.”

Exactly the same information is contained within the equivalent publication for domestic properties which has been published more recently in October 2017. Changes in other guidance documents issued by MHCLG (formerly DCLG) and BEIS have also been made to reflect this. However, whilst they tend to reduce the previously special status given to listed buildings to a par with other designations including Conservation Areas, National Parks, Scheduled Monuments and protected parks and gardens, they do little to clarify exactly how far an exemption applies.

This guidance would seem to suggest that the UK Government believes the exemption for listed buildings is much more restricted than had previously become accepted. Indeed, it would appear to be more compatible with the Scottish Government’s interpretation that the exemption is solely from making improvements that would unacceptably alter the protected building’s character or appearance and not from the entirety of the process. Similarly, it would appear to reflect an expectation that reasonable improvements, particularly where these would improve the energy efficiency of a building whose performance is currently very poor, should be carried out.

This is not without merit or logic. At the current time, an EPC in itself does not mandate that any works actually be carried out. The recommendations are just that, recommendations. Therefore a view could be formed that having an EPC can never unacceptably alter the character or appearance of the building. As such it could be argued no building can claim exemption from having an EPC on these grounds alone. Additionally, the current requirements under the MEES include provision for exemptions from making specific improvements where required third party consent cannot be obtained. Hence, if Listed Building Consent cannot be obtained from the relevant authorities no unacceptable alteration to the character or appearance of the building is required and so again, there is no need to apply this exemption from having an EPC.

Many councils provide guidance on improving historic buildings with Westminster City Council providing some of the most extensive and practicable advice we have found. This includes a document titled “Energy Efficiency in Conservation Areas” which discusses improvements that can be made without damaging historic structures.

It may have taken some time but even Historic England have now updated their guidance to emphasise the limited nature of the exemption for both Listed Buildings and those in designated Conservation Areas. (NB: We cannot accept responsibility for the actual content of third party websites and it would appear that even this revised guidance contains some technical errors relating to EPCs). They also provide a wealth of information for those wishing to improve historic buildings without damaging their character and appearance. Indeed, they acknowledge that ensuring a building remains useful and occupied is often the best way of protecting it for the future. Additionally, some energy improvement measures can also improve fire safety and resilience in historic buildings. It should be remembered that it was never the intent of the protection schemes to freeze buildings in time but instead to ensure that they are managed with appropriate sympathy and conserved for the future.

The background to this issue is also explored in an article by The Residential Landlords Association. They make the following observation in relation to the exemption of Listed Buildings from EPCs:

“So in reality, in terms of an EPC, the caveat is meaningless. Therefore, a landlord cannot know if an EPC is needed before they have an EPC for the property”

This article continues to draw the following overall conclusion:

“Regrettably, we simply do not know the answer to whether or not an EPC is required for a listed building; nor whether landlords who have rented out listed buildings will have to comply with Minimum Energy Efficiency Standards (subject to any other available exemption, e.g. limiting the amount they have to spend); or whether you need an EPC for a listed building in order to be able to rely on regaining possession under Section 21 of the Housing Act 1988. What is clear is that if you have no EPC then you do not have to comply with Minimum Energy Efficiency Standards from 2018 onwards. You could be liable for a penalty for not having an EPC and equally you might not be able to get possession back relying on Section 21. This is a wholly unsatisfactory state of affairs which needs to be addressed by the Government.”

Interestingly, at a recent industry conference (Spring 2018), representatives of both MHCLG and BEIS confirmed that they believed Listed Buildings should have EPCs completed and that recommendations should be implemented wherever possible but with appropriate sympathy to the building as a whole. They were unaware of the conflicting guidance from Historic England which they accepted may be the source of a lot of the current confusion and undertook to attempt to ensure that Historic England updated their guidance to more accurately reflect the limitations of any exemptions which may be available.

Unfortunately, as energy assessors, we are not in a position to provide legal advice but present this information to help you form your own opinion. However, we would point out that there is currently nothing to stop an EPC being completed on a voluntary basis even when one is not required by law. This may have its own implications and so building owners and occupiers should seek their own legal advice but voluntary compliance may provide a suitable solution.

Some listed buildings in England & Wales may be exempt from some or all of the Energy Performance Certificate (EPC) and Minimum Energy Efficiency Standards (MEES) requirements. However, specific legal advice should be sought on a case by case basis. It is unlikely that an exemption can be demonstrated without first having an EPC completed to confirm the recommendations proposed.

Buildings within formally designated conservation areas are less likely to be subject to exemptions.

What is “Green Deal”? Are other funding options available?

You may have heard about the Green Deal initiative or seen reference to it on your Energy Performance Certificate. Green Deal was a government backed scheme to help fund improvements that would bring about savings to your energy bills. Under the scheme the government would fund loans to help meet the initial cost of the improvements which you would then pay back as part of your future energy bills. The idea was that the repayment costs would be offset by the savings in your bill so you would not have to find the extra money to pay for the improvement. However, the government has stopped funding the Green Deal Finance Company which was set up to lend money to Green Deal providers to fund improvements under the scheme.

The scheme is now operating in a new format and is funding some projects. A full relaunch is expected soon and Green Deal assessments are still available. You can find out about the scheme by visiting the Green Deal Finance Company website.

However, Green Deal finance is not the only way you can fund improvements and other financial packages are available. In addition to normal loans there are specialist financial packages and grants available. Some of these take the form of more traditional loans and mortgages which could still be repaid from savings in the energy bill and may offer lower interest rates. We make no recommendation in relation to any of the financial packages available and advise that you seek your own independent financial advice.

Other providers include:

Major banks and building societies

Ecology Building Society – Sustainable savings and mortgages

Portman Asset Finance – Finance for businesses to install renewable technologies

Carbon Trust Financing – General information, grants and loans

Salix Finance – Funding for the public sector