Commercial Update 94 – What are MEES and what next for ‘green’ leases?

1 April 2023 saw the last step in the UK’s Minimum Energy Efficiency Standards (MEES) regime conclude, meaning that (with limited exceptions) you cannot continue to let sub-standard property (that has an EPC rating below an E) without registering an exemption.

The MEES were brought into force (pursuant to the Energy Efficiency (Private Rented Property) (England & Wales) Regulations 2015 in stages from 2016, with the intention of improving the energy efficiency of privately rented buildings in England & Wales.

In a nutshell Landlords are legally required (unless an exemption applies) to bring their properties up to the new minimum EPC standard to avoid a statutory breach.

The standards are measured by reference to the energy performance certificate (EPC) rating (A-G) of a property and affect private rented properties in both the residential and commercial sectors.

I’m looking this note at commercial properties (referred to in the Regulations as “non-domestic”) only.

Please note that the MEES do not apply if:

  1. the term of the tenancy is less than 6 months (unless it contains an option to renew the term or extend it beyond 6 months, or if the tenant has already been in occupation for more than 12 months);
  2. the term of the tenancy is more than 99 years; or
  3. the need for a current EPC certificate has not been triggered for the relevant building or space.

There are also a range of exemptions available as well. Failure to comply will not void any lease, but may result in adverse publicity and a fine of up to £150,000.

In the meantime, demand for sustainable, energy-efficient buildings continues to rise, and their social, environmental and reputational benefits are now widely understood and so called ‘green’ leases are being negotiated more frequently.

At their heart, these are conventional leases, with added environmentally-conscious provision, ranging from the promotion of cooperation and collaboration between landlords and tenants to promote sustainable practices, to more stringent provisions such as those dictating renewable energy reliance.

It is important to remember though, that green drafting has been around for years with the Better Building Partnership introducing its Green Lease Toolkit in 2013 and in recent years, the Chancery Lane Project (a legal collaboration) has published darker green clauses for bespoke inclusion in real estate transactions.

Most widely adopted at the moment though, are the light green sustainability provisions included in the Model Commercial Lease, which prioritise discussion and data sharing.

To conclude, in its 2020 energy white paper, “Powering our Net Zero Future”, the Government set out the target to deliver net zero by 2050.

It suggested that commercial properties should have an EPC rating of B or higher by 2030 but crucially only where “cost effective”.

In the meantime and with this in mind, sustainability-focused lease drafting is undoubtedly on the increase, with advisors now preparing, on request, a range of “green” clauses based upon the particular concerns of, or environmental focus of, their clients – by including appropriate green lease terms in standard leasing documents, a landlord may be able to address investor and regulatory concerns and tenant demand, reduce insurance premiums, increase the value of its real assets and improve the workplace experience.

What green provisions all have in common though, is their acknowledgement of the urgency of taking action towards reducing the net environmental impact of a building, its use and occupancy, which is an aim that hopefully most of us can subscribe to.

Regards to all,