What is MEES?
The Minimum Energy Efficiency Standards (“MEES”) significantly altered the landscape of commercial property leasing and dilapidation claims in England & Wales. MEES, designed to improve the energy efficiency of buildings, has far-reaching implications for both landlords and tenants. This article explores the key aspects of MEES and its impact on dilapidations.
Introduction of MEES
MEES regulations were introduced in phases, with key dates in 2018 and 2023. From 1 April 2018, most buildings required an Energy Performance Certificate (EPC) with a minimum rating of E when sold or newly let. The regulations expanded some five years later on 1 April 2023, extending their applicability to existing leases. MEES aims to enhance the overall energy efficiency of building stock in England & Wales.
MEES Regulations – Current Status
Last year, the latest phase of MEES came into force as part of the previous government’s target to reduce emissions to net zero by 2050. Shortly after, Rishi Sunak announced that the proposed plans were to be scrapped for private rented domestic properties. It was assumed MEES would continue to apply to commercial properties.
However, the announcement of the general election (and what subsequently followed) altered these plans. The new Labour government seeks to reintroduce MEES for both domestic and non-domestic properties by 2030. It is thought that the EPC requirement will be C by 2027 and B by 2030.
Impact on Dilapidation Claims
The introduction of MEES has created new complexities and uncertainties in dilapidation claims.
Most commercial leases include covenants requiring a tenant to return a property to its original condition at the end of the lease term. However, MEES has introduced new considerations that can significantly impact these claims and cause conflict:
Who is responsible for bringing a property into compliance with MEES?
MEES does not place an obligation on tenants to upgrade properties; it simply prevents non-compliant properties from being leased. It puts the onus firmly on landlords (including where a tenant under a headlease has granted a sub-lease).
However, tenants should check whether there is an obligation on them to do so under their lease. A key point to understand is that failure to achieve an E rating may not, in itself, be a breach of the repairing covenant. Most leases will oblige tenants to leave the building in good condition (or similar wording), but that may not make them responsible for ensuring MEES compliance, especially if the property was non-compliant at the start of the lease.
A widely drafted statutory compliance clause may place an obligation on a tenant to bring the property into MEES compliance. Going forward it is expected that landlords will push for explicit clauses regarding the costs of this.
Landlords should also consider whether any tenant alterations have altered the EPC rating. If alterations have lowered the EPC rating, then reinstatement should be requested. However, if those alterations have improved the rating, and will not prevent a reletting (say, they have not altered the demise drastically) then it may be better to waive any requirement to reinstate.
Supersession
The concept of supersession has gained prominence in dilapidation disputes. It is a hotly disputed area, but in principle, it prevents tenants from paying for repairs that would be superseded by any works that a landlord intended to carry out anyway. For instance, if a landlord needs to replace an air-conditioning system to achieve the required EPC rating, it would be pointless for the tenant to repair the existing system under dilapidated obligations.
In short, this means that the landlord has not suffered any financial loss due to tenant breaches of the lease, and it follows that there is no dilapidations claim.
That is not to say that this will provide a tenant with a foolproof defence. The landlord may seek to rely on any covenants relating to statutory compliance, or argue that current systems could have been repaired to the required EPC rating by the tenant.
Claim for loss of rent
If a property does not have the correct EPC rating at the end of the lease, then a tenant may argue that there can be no loss of rent claim, because the landlord is prevented from re-letting due to non-compliance with MEES.
Again, the landlord is likely to push back on this. If other widespread breaches will take far longer than the work to bring the premises into compliance with MEES, then it will be hard to defend the entirety of the loss of rent claim based on an MEES argument.
Conclusion
Landlords must plan ahead for MEES compliance to avoid last-minute, costly upgrades. Early consideration should be put to the long-term energy efficiency strategy when assessing dilapidations claims, with an eye on 2027 and 2030. Landlords will need to be prepared for the possibility of potential reductions in dilapidations recoveries where supersession arguments apply.
Tenants, on the other hand, should understand that MEES compliance is primarily the landlord’s responsibility. However, they should review their lease carefully as some covenants could be wide enough to catch works to ensure the property is MEES compliant.
The introduction of MEES has added a new layer of complexity to the already intricate world of dilapidations claims. While landlords are the primary target, they have significant implications for tenants as well. Both parties need to be aware of how MEES can impact their rights and responsibilities at the end of a lease. As we move towards stricter energy efficiency standards, dilapidations disputes related to MEES will likely increase. By understanding the interplay between MEES and dilapidations, both parties can better navigate this changing landscape and work towards more sustainable, energy-efficient commercial properties.
How can we help?
We have extensive experience of dealing with complex dilapidations claims from both a landlord and tenant perspective. If you require assistance reach out to our Property Litigation team.
