THE IMPACT OF MEES LEGISLATION FOR THE PROPERTY MANAGER
ENVIRONMENTAL LANDSCAPE FOR COMMERCIAL REAL ESTATE MEES Minimum Energy Efficiency Standards Energy case study 9th November 2016 2
(MEES) Minimum Energy Efficiency Standards 9th November 2016 3
Overview WHY: Energy Act 2011 requirement INTENT: Improve energy efficiency of existing buildings STATUS: The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 approved by Parliament March 2015 WHAT: Achieve minimum energy efficiency certificate rating of E HOW: Improve mechanical, electrical and fabric of building Rating based on theoretical performance compared to notional building 9th November 2016 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 9th November 2016 5
Timeline March 2015 Primary legislation for MEES April 2018 New lettings or renewals - minimum standard of E EPC, or register exemption April 2023 All PRS properties need to meet the minimum standard, or register exemption 9th November 2016 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 9th November 2016 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! HEALTH WARNING: Check validity of exemptions on due diligence 9th November 2016 8
Which EPC? Is obligation to MEES only where an EPC is required No! Obligated if EPC is lodged 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 9th November 2016 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 9th November 2016 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! 9th November 2016 11
Implications on Value Liquidity Cost of Finance Marketability Lease length Rental growth Yield on Sale 9th November 2016 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 9th November 2016 13
Next Steps Data collation & Analysis Graphical analysis source SIERA sustainability management software 9th November 2016 14
Case Study 71% ERV from one corporate tenant Good EPC Energy performance very poor 2 years left on lease Over-rented Froth!
Deal struck with tenant New HVAC 2 year lease extension Retrofit paid for by froth by end of lease extension New 15 year HVAC Likelihood of further lease extension
Contact Us Chris Bennett Managing Director 020 3326 7333 07810 631599 cbennett@evoraglobal.com www.evoraglobal.com This document has been prepared by Sustainable Commercial Solutions Limited trading as EVORA for the sole purpose of providing general information. No reliance may be placed, for any purpose whatsoever, on the content of this document and we accept no duty of care of liability to any party for any loss, howsoever arising, as a result of any action or inaction taken as a result of this document. 9th November 2016 17