Proposed amendments to the PRS Regulations brought into force in 2015, which established the existing Minimum Energy Efficiency Standards (MEES) for privately rented property in England and Wales, are a clear example of the important role that the real estate sector must play in helping the government achieve its net zero target.
By 1 April 2023, it will be unlawful for landlords to continue to let non-domestic properties – as opposed to granting new leases – if they have an EPC rating of ‘F’ or ‘G’.
While this is the most immediate revision, a March 2021 consultation also proposed a phased implementation of the EPC rating of ‘B’ for 2030, with an interim EPC rating of ‘C’ required by 2027. These target ratings will be achieved in two stages by means of two ‘compliance windows’.
As expected, the headline proposed amendments do not constitute a three-line whip and there will almost certainly be wide-ranging exemptions available to landlords. There
are already several existing exemptions that are typically valid for five years and can be claimed more than once in certain circumstances.
However, it is important to keep in mind that the benefit of these exemptions does not pass on automatically on the purchase of a property.
It goes without saying that many landlords will have to incur significant capital expenditure on improving the energy efficiency of their properties to ensure compliance with the increased EPC ratings, with a wider net cast if the proposed amendments are brought into force.
Landlords will need to act soon to ensure that new leases granted reserve sufficient rights to enable them to comply with their existing and future obligations under the PRS Regulations and MEES.
Similarly, tenants will want to check the leases of any premises where they wish to sublet and ensure subleases successfully pass on the liability to contribute to energy efficiency improvements.
Rory Bennett is a managing associate and real estate ESG lead at law firm Linklaters