Commercial landlords and tenants have less than five months to go until the first major change comes into force following the government implementing the Minimum Energy Efficiency Standards (MEES) in 2018. 

Currently, a commercial landlord cannot grant a new lease of a property that has an energy performance rating of less than E - unless an exemption applies. 

From 1 April 2023, it will be unlawful to continue to let a non-domestic private rented property with an energy rating of less than E. This change forms part of the government’s proposed phased increase in the minimum energy performance rating of all properties to a B by 2030. 

To reach a minimum energy performance rating of B, it is estimated that 85% of all non-domestic private rented property will need to drastically improve their energy performance ratings. 

Impact on tenants  

Tenants should be carefully checking the terms of their leases to see where the responsibility of improving an asset’s energy performance rating lies. 

Many modern retail leases, especially those in shopping centres owned by institutional landlords, will contain obligations requiring a tenant to cooperate on sustainability, energy saving or carbon reduction initiatives. 

Increasingly common service charge provisions are the costs of maintaining or improving the energy performance rating of an asset. If a building currently has a substandard rating, it could be a costly and steep hill to climb to bring it up to an energy rating of more than E in time for April 2023. 

Some tenants may also rely on the ability to underlet the whole or part of their premises to generate income to cover costs. Under MEES, tenants looking to underlet their premises will be prevented from doing so unless the rating of the property is an E by April 2023. This could lead to a situation where tenants start approaching their landlords to negotiate an early surrender in an attempt to cut overheads. 

For landlords 

While there is no criminal liability under the regulations, the Local Weights and Measures Authorities can enforce breaches of MEES and impose financial penalties. 

Perhaps more significant in today’s economic climate, but landlords of older buildings may have to incur considerable costs to increase the minimum energy performance of their properties to an E-rating by April 2023 and then to a B-rating by 2030. These costs, if not properly accounted for, could have serious detrimental effects.

It remains to be seen what last minute action plans landlords and tenants will be seeking to put in place in time for April 2023. Climate change continues to form a key part of government policy, however, so landlords and tenants should expect further developments on MEES in the future.

Upgrading their premises is not only key to ensuring compliancy with MEES but should also be considered as an effective way for landlords and tenants to combat rising utility costs, futureproof their buildings and, critically, reduce carbon emissions to support the transition to net zero.