Like any business, food and drink producers looking to sell any freehold property or grant a lease of premises, need to be aware of the changes coming into force on 1 April 2018 when the Minimum Energy Efficiency Standards (MEES) will start to bite.
From that date it will be illegal to let commercial buildings (although there are some buildings that will not be caught and there are certain limited exemptions) for any period between 6 months and 99 years with an EPC rating below an “E” rating. Whilst it predominantly catches landlords looking to let business premises, it will inevitably have cost implications for businesses looking to move to premises that are not energy efficient.
The 1 April 2018 deadline will apply to the grant of new leases, but the second stage of the regulations will apply from 1 April 2023 and will include existing leases where the rating falls below the current E rating. The implications of this are far reaching. It is likely that a large number of commercial buildings will be deemed unlettable unless they comply with MEES. Non-compliant properties will potentially suffer a reduction in rental income, longer marketing periods, enhanced due diligence for sales and refinancing, and costs associated with compliance.
It should be stressed that the legislation is squarely aimed at landlords (and indirectly at sellers) as the penalties and fines are for the landlord to pay in the event of non compliance. There are certain key steps that you should take now to assess how MEES is likely to affect your property, such as:
- Check the expiry date of any existing leases/check the EPC rating and consider if a new EPC is required (they are valid for 10 years).
- Review existing lease provisions, especially rights to carry out works and recovery of costs under any service charge provisions.
- Consider if any cost-effective works can be carried out to improve the rating (seek advice from a surveyor).
- Consider draft provisions for any new leases.
The true effect of these regulations remains to be seen, but landlords and tenants are encouraged to address the issues of MEES by way of lease drafting or amendments before the 2018 initial deadline arrives.
For help and advice on the impact of MEES, lease drafting and the best approach for your property portfolio, please contact Toby Pool (Devon) or Simon Gawler (Cornwall) at solicitors@stephens-scown.co.uk.