THE IMPACT OF MEES LEGISLATION FOR THE PROPERTY MANAGER
ENVIRONMENTAL LANDSCAPE FOR COMMERCIAL REAL ESTATE MEES Minimum Energy Efficiency Standards Energy case study Optional caption placeholder 2
(MEES) Minimum Energy Efficiency Standards 3
Overview WHY: Energy Act 2011 requirement INTENT: Improve energy efficiency of existing buildings STATUS: WHAT: HOW: The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 approved by Parliament March 2015 Achieve minimum energy certificate rating of E Improv mechanical, electrical and fabric of building rating based on theoretical performance compared to notional building. 4
Impact The single most significant piece of legislation to affect our existing building stock in a generation John Alker, Director of Policy & Communications, UKGBC Unlawful to let buildings with the two lowest EPC ratings of F & G from April 2018. Impacts 18% of current assessed buildings 5
Timeline April 2023 March 2015 Primary legislati on for MEES February 2017 Non domestic guidance issued April 2017 PRS exemptions register opens April 2018 New lettings or renewals - minimum standard of E EPC, or register exemption All PRS properties need to meet the minimum standard, or register exemption 6
Exclusions Properties which do not require an EPC < 50m 2 Temporary (< 2 years planned use) To be demolished Listed Places of worship Buildings with no heating or cooling Lettings excluded Leases < 6 months Leases > 99 years 7
Exemptions Landlord s duty to meet minimum standards. All possible measures taken..but subject to Exemptions: 1. Not cost-effective (7 year payback or Green Deal s Golden Rule) 2. Necessary consents not received - reasonable efforts made! 3. Devaluation by 5% or more 4. 5 year review Exemptions registered on the PRS Exemptions Register Not based on Affordability! 8
Which EPC? Is obligation to MEES only where an EPC is required Yes! Voluntary EPCs what are these? Tenant EPCs beware! Building or unit EPC? EPC for discrete space being let rather than whole building if both exist Cannot opt for best rating 9
A Moving Target EPC ratings linked to current building regulations As building regulations get tougher, achieving minimum standards gets tougher Pre 2011 ratings could fall one or two bands by 2018/19 18% currently at risk could increase substantially Poor quality of previous EPC ratings Default settings often used MEES Future trajectory unknown No current guidance Expectation requirements will get tougher 10
Landlord Considerations MEES obligation on Landlord, not Tenant Refurbishments minimum standards Bar on alterations that adversely affect EPC rating Tenant business interruption and consent FRIs no legal right to gain access Improvement vs repairing obligation Dilapidations any impact? Tenant subletting who s responsible for MEES? Collaboration vs Green lease clauses! 11
Implications on Value Liquidity Cost of Finance Marketability Lease length Rental growth Yield on Sale 12
Enforcement & Penalties Renting out a non-compliant property: < 3 months breach 10% rateable value - Min 5k, max 50k > 3 months breach 20% rateable value - Min 10k, max 150k Publication of non compliance False or misleading information: 5,000 Publication of non compliance NOTE: the validity and enforceability of the tenancy is not affected by the breach 13
Next Steps Data collation & Analysis 17 May 2017 14
Case Study 71% ERV from one corporate tenant Good EPC Energy performance very poor 2 years left on lease Over-rented Froth! 15
APPROACH Deal struck with tenant New HVAC 2 year lease extension OUTCOME Retrofit paid for by froth by end of lease extension New 15 year HVAC Likelihood of further lease extension FROTH IS GOOD! 16
Get in Touch HEAD OFFICE EVORA 37 Albert Embankment London SE1 7TL MANCHESTER OFFICE EVORA Suite 12 42-44 Chorley New Road Bolton BL1 4AP Contact Chris Bennett, Director Telephone +44 (0)7810 631 599 Email cbennett@evoraglobal.com Socialise @evoraglobal linkedin.com/company/evora-global @evoraglobal 17