With the imminent introduction of MEES, I am sure many landlords and property owners are considering what actions they need take, if they haven’t already done so, and one question that I am sure they will be considering – if they qualify for MEES exemptions or not.
So, what does make a property exempt, and what process should be followed to ensure any exemption is compliant?
The guidance issued by the government last year lists the following situations where a property is exempt from the regulations:-
- Properties that are exempt from the EPC regulations are also exempt from MEES.
- Only improvements to the property with a payback of seven years or less will be affected by MEES.
- If third party consents are not available despite reasonable effort to obtain them.
- Where a property cannot be improved to an E rating because the energy efficiency measures will devalue the property.
- Where wall insulation is not appropriate for the property due to it having negative impact on the fabric or structure.
- Exemption due to recently becoming a landlord.
- Where all relevant improvements are made and the property remains below an E rating.
- Where the property is below an E rating and where there are no improvements that can be made.
The Energy Performance of Buildings Directive was brought into force in 2003, with the requirement to have an EPC on construction, sale or lease introduced in 2008. There are certain situations where properties are not required to have EPCs, which means they fall under the MEES exemptions. However, it is still worth considering procuring an EPC in this situation, as a voluntary EPC will still be exempt, and knowledge will be obtained of the EPC rating, as well as a better understanding of the energy performance of the property. It will also enable an assessment to be made of possible improvement measures, and any return on investment, by using a platform such as that offered by arbnco.
To be able to demonstrate a payback of above seven years of improvement measures can involve a significant amount of time and resource, and the guidance indicates that three separate quotes by competent suppliers are required. Detailed calculations are required to show how the seven years payback has been arrived at, and whether a package of improvements could be implemented. arbnco’s platform, arbn consult, can easily provide an assessment of this, as the system has costs built in, and will automatically calculate paybacks as well as EPC improvements.
Third party consents include those that may be required from a superior landlord, local authority planning, tenant consent, or a bank that may have an interest in the property for example. Reasonable effort has to be made to obtain consent, and evidence has to be provided to show attempts have been made on a number of occasions using a number of different means of communication.
To be exempt on the basis of property devaluation, a report has to be obtained from an independent RICS surveyor showing that the installation of specific energy efficiency measures would reduce the market value of the property by five percent or more. This is unlikely to occur often, but it provides safeguards for landlords where there could be a significant impact on the commercial value of a property.
The regulations acknowledge that there are some circumstances where a person may have become a landlord suddenly, and temporary exemption lasting for six months will apply. Such circumstances can include where a tenant becomes insolvent and the landlord has been the tenant’s guarantor, or where the landlord has been a guarantor, or a former tenant, who has exercised the right to obtain an overriding lease of a property under section 19 of the Landlord and Tenant (Covenants) Act 1995, or where a new lease has been granted under the Part 2 of the Landlord and Tenant Act 1954, or granted by a court order.
The exemption relating to wall insulation is a recognition that certain wall insulation systems cannot be installed on particular properties even where they meet the seven-year payback. For example, where cavity wall insulation, external wall insulation or internal wall insulation for external walls has a negative impact on fabric or structure, then provided written expert advice is obtained from an independent expert to state this, an exemption will apply.
Where F and G rated properties which are covered by MEES and which qualify for a valid exemption will need to be registered on the National PRS Exemptions Register. This register will be publicly available, be used by the enforcement authorities as a tool to support enforcement and by the government to monitor the impact of the regulations. The register is currently being trialled with the aim of bringing into operation fully on 1st April 2018.
The MEES exemptions remain in force for a period of 5 years, apart from the exemption relating to lack of tenant consent which lasts for 5 years or until the tenancy ends (whichever is soonest), and the exemption for recently becoming a landlord which lasts for a period of 6 months.
It will be interesting to see how the MEES exemptions process develops, as some may see them as “get out clause” rather than treat them in the manner they are intended. It will depend on how they are policed by the enforcement authorities taking account of their limited resources, and the effect of any prosecutions may have in the industry.
As evidenced by information produced by arbnco, it is not always too expensive or disruptive to make energy efficiency improvements, and it may make sense in some cases to carry out the improvements, rather than go through the exemptions process, even if an exemption is applicable.