MEES: How to Identify Problem Properties in Commercial Real Estate

The Minimum Energy Efficiency Standard (MEES) is a key regulation that affects the energy efficiency of commercial properties in the UK. Introduced in 2018, the MEES regulations mandate that all leased commercial properties must have an Energy Performance Certificate (EPC) rating of at least "E." Properties with a rating of "F" or "G" cannot be rented out or leased without significant improvements. This has created a new wave of compliance challenges for landlords and tenants alike. Identifying problem properties under MEES standards is crucial to avoid costly non-compliance fines and missed opportunities.

Identifying Problem-Properties

1. Review the EPC – this will give you an immediate understanding of how energy-efficient a building is and identify some areas for improvement. A copy of this certificate will be available online (through the Government EPC database) or from your landlord/agent.
2. Consider the age and type of buildings - older buildings and those constructed with inefficient materials or systems are often more likely to have poor EPC ratings. Other common problem property types to consider are listed buildings, industrial buildings and older office buildings.
3. Energy audits and surveys – professional surveys and audits can help to identify problem areas in buildings, such as HVAC systems, lighting, windows and insulation, and can offer advise on how to improve the rating.
4. Reviewing past lease transactions – looking at historical lease transactions can provide insight into whether the building’s energy performance has been a point of contention in the past. For example, some tenants might have negotiated rent reductions or lease clauses that reflect high operating costs due to poor energy efficiency. If improvements are made, the property may be more attractive to tenants and may be able to demand higher rents.

The Effect on Landlords and Tenants

Landlord and tenant negotiations including dilapidations, rent reviews and lease renewals can be affected by the MEES regulations, so it is important to balance both Landlord and Tenant requirements whilst remaining compliant. For instance, if there is no express obligation with the repairs and particular rating of the EPC within the lease (not uncommon on 54’ leases), if a property does not have the correct EPC rating in place at lease expiry, the tenant may successfully argue there can be no loss of rent claim or diminution in value.

Identifying problem properties under MEES regulations is crucial for commercial landlords and tenants. Understanding the EPC ratings is essential in pinpointing which properties require improvement and can have an impact on lease negotiations. As the regulatory landscape continues to shift toward stricter energy performance standards, addressing these concerns early on can help avoid non-compliance fines and can strengthen your negotiation position as a landlord or tenant.

For further information, contact Nick Edwards