MEES in Commercial Conveyancing: Why EPC Ratings Matter in Property Transactions

Minimum Energy Efficiency Standards, usually known as MEES, are now a key issue in commercial conveyancing. Whether you are buying, selling, refinancing or leasing commercial property, the property’s Energy Performance Certificate (EPC) rating can affect timing, risk, price negotiations and lender requirements.

For privately rented non-domestic property in England and Wales, the current minimum energy efficiency standard is EPC band E, unless a valid exemption applies. GOV.UK describes this as the Minimum Level of Energy Efficiency standard for non-domestic private rented property.

What are MEES?

MEES are rules that set a minimum energy efficiency level for certain privately rented properties. In the commercial property context, they are particularly relevant where a building is let, or is intended to be let, and is required to have an EPC.

In practical terms, if a privately rented commercial property has an EPC rating of F or G, it may be classed as sub-standard unless the property is outside the scope of the regulations or a valid exemption has been registered.

Why is 01/04/2023 important?

The key date for commercial landlords is 01/04/2023.

Since then, the MEES requirement has applied not only to new lettings and lease renewals, but also to continuing lettings of privately rented non-domestic property. This means a landlord should not continue to let a sub-standard commercial property unless it has been improved to at least EPC E or a valid exemption has been registered.

This has made MEES a core due diligence point in commercial property transactions.

Why MEES matter in commercial conveyancing

MEES can affect a wide range of commercial property matters, including:

• sales and purchases of investment property
• lease grants, renewals and assignments
• refinancing
• lender reporting
• lease drafting and negotiation
• post-completion risk for buyers and landlords

A buyer of a let commercial investment property should check the EPC rating at an early stage. If the property is let and rated below EPC E, the buyer will need to understand whether improvement works are required, whether the property falls outside the regime, or whether a valid exemption has been registered.

This is also likely to matter to lenders, who may want comfort that the property can lawfully continue to be let and that there is no hidden regulatory issue affecting value or marketability.

MEES exemptions should not be assumed

A MEES exemption is not automatic. GOV.UK guidance states that where an exemption applies, it must be registered before it can be relied on. The guidance also notes that exemptions are registered on a self-certification basis, and that exemptions may not transfer to a new owner or landlord on sale or transfer.

Common non-domestic MEES exemptions include:

• the 7-year payback exemption
• the all improvements made exemption
• the consent exemption
• the devaluation exemption
• the new landlord exemption

The 7-year payback exemption applies only to non-domestic property and may be relevant where the cost of purchasing and installing recommended improvements does not meet the required payback test.

Because exemptions are technical and evidence-based, buyers and lenders should not simply accept that an exemption exists. The exemption should be checked against the PRS Exemptions Register and the supporting evidence.

The conveyancing risk

The main risk is that an EPC or MEES issue is discovered too late.

If the EPC rating is not checked until after heads of terms have been agreed, it may create problems with:

• transaction timetable
• lender approval
• price renegotiation
• responsibility for improvement works
• service charge recovery
• access rights for works
• future lease terms
• post-completion compliance

For lease transactions, the parties should consider who will be responsible for energy improvement works, whether the landlord has sufficient rights of access, whether costs can be recovered through the service charge, and whether tenant alterations could negatively affect the EPC rating.

These are practical drafting points. They should be dealt with in the lease where appropriate rather than left as assumptions.

Practical MEES due diligence checklist

For commercial conveyancing transactions, the safest approach is to raise MEES at the start. Key checks include:

1. Obtain a copy of the current EPC.
2. Confirm whether the property is let or will be let.
3. Check whether the property is required to have an EPC.
4. Identify whether the rating is below EPC E.
5. Ask whether any exemption is being relied on.
6. Verify any exemption on the PRS Exemptions Register.
7. Review the evidence supporting the exemption.
8. Consider whether the exemption will continue to apply after completion.
9. Raise any lender reporting issues early.
10. Address responsibility for improvement works in the lease or contract.

If the position is unclear, it should be dealt with before exchange or completion. It should not be treated as a post-completion housekeeping point.

Are higher EPC standards expected?

Higher future EPC standards for commercial property have been discussed. Previous government consultation material referred to an EPC B trajectory for privately rented non-domestic buildings by 2030.

However, the current confirmed minimum legal requirement for privately rented non-domestic property remains EPC E, unless a valid exemption applies. Anyone involved in commercial property should continue to monitor future changes, particularly where a property is being acquired as a long-term investment.

How Martin Tolhurst Solicitors can help

MEES should be considered at the outset of any commercial property transaction. Early advice can help identify risk, avoid delays and ensure that EPC issues are properly reflected in the contract, lease or lender report.

Our commercial conveyancing team can advise on EPC and MEES issues arising in sales, purchases, refinancing and lease transactions.

FAQs

What does MEES mean in commercial property?

MEES stands for Minimum Energy Efficiency Standards. In commercial property, the rules apply to many privately rented non-domestic properties in England and Wales that are legally required to have an EPC.

What EPC rating is required for commercial rented property?

The current minimum standard for privately rented non-domestic property is EPC band E, unless a valid exemption applies.

Can a landlord let a commercial property with an EPC rating of F or G?

In many cases, no. If the property is within the scope of the MEES regulations, a landlord should not let or continue to let a sub-standard property unless it has been improved to EPC E or a valid exemption has been registered.

Do MEES exemptions transfer to a buyer?

Not necessarily. GOV.UK guidance states that exemptions may not pass to a new owner or landlord on sale or transfer. A buyer should check the position carefully before completion.

Why do MEES matter to buyers and lenders?

A poor EPC rating can affect whether a let commercial property can lawfully continue to be let. This may influence value, lending, transaction timing and future costs.

Note

This article is a general overview for commercial conveyancing purposes. It is not legal advice on any specific transaction.