Introduction of MEPS (MEES) 
 
Under the Energy Act 2011, from April 2018, it will be unlawful to let properties that fail to achieve a prescribed minimum energy performance standard (MEPS) until qualifying improvements have been carried out. The minimum standard will be equivalent to an Energy Performance Certificate (EPC) rating of E. As a result, owners of properties with EPC ratings of F or G will, in some circumstances, no longer be able to let these properties until their energy efficiency has been addressed. 
 
With nearly 75,000 commercial premises having EPC certificates rated F or G (~19% of certified units) and a further 65,000 with an E certificate, this policy has the potential to have a dramatic impact on levels of investment in the energy efficiency of our existing buildings. Furthermore, since the policy was first mooted, there has been widespread discussion about its potential implications, with some anecdotal reports of transactions being delayed and with F or G-rated properties being considered as “risky” within the market. 
 
The intention of MEPS regulations is to stimulate market changes to speed up the rate at which energy efficiency upgrades to inefficient buildings take place. Research points to the likely success of this strategy in many parts of the property investment market. MEPS should trigger cost effective investments in a wide range of building types, thereby reducing energy use and associated cost and carbon emissions. These measures will be beneficial for occupiers by reducing their costs and the wider economy and society by stimulating cost effective investment and reducing carbon emissions. In many locations the costs associated with MEPS regulations will be relatively small as a proportion of the rental and capital values of the property. The results will be optimised when the work is undertaken “in-cycle” as part of more extensive refurbishment or fitting out works. 
 
 
 

Expected implementation of MEPS (MEES) in England and Wales 

The Energy Act 2011 obliges the government to introduce energy efficiency regulations by no later than 1 April 2018 and, while the broad parameters of the new regulations are set out in the Act, much of the detail has been left for secondary legislation. For the purposes of this study, the following key assumptions have been made about implementation of the regulations. 
 
After April 2018 a landlord may not let (or in 2023 even continue to let) a property failing to achieve the minimum standard of energy efficiency (EPC). A property failing to meet the minimum standard can continue to be let if the current tenant refuses permission for improvement works to be undertaken. Thus, in practice, a landlord will not need to undertake energy efficiency upgrades mid-tenancy unless the tenant agrees that the works should be undertaken. 
 

Implications for property owners 

The introduction of MEPS is expected to increase general awareness of energy-related issues and it is likely that buyers and potential tenants of poorly-rated units will have greater regard to the potential cost of compliance before committing to transactions. In some circumstances, the cost of energy and the cost of mandatory energy efficiency improvements will come to influence market pricing. Anecdotal evidence would suggest this is already the case as potential purchasers look carefully at the risks attached to properties with F and G ratings. 
Energy saving potential 
Owners are only liable to undertake improvements that are cost effective. For buildings with a very high energy saving potential, as modelled by EPC assessment software, the potential level of investment to secure the saving can be relatively high as a proportion of rental income. For most properties, the energy cost saving and therefore associated expenditure is relatively low as a proportion of income and value. 
Cost of compliance 
The cost of energy efficiency improvements differs according to the type of building, its age and current specification. Further, building costs vary considerably from one region to another. There is therefore likely to be some regional variation as to what works are considered cost effective. 
Potential to add value 
Rents and other property market characteristics vary substantially both within locations and across the UK. Market conditions will influence both the significance of any irrecoverable costs incurred and also the potential for generating a return on refurbishment activity. 
Responsibility for repayments 
The extent to which an occupier is prepared to meet the cost of improvements has significant implications for landlords. MEPS policy (and the wider Green Deal approach) is based on the assumption that building occupiers will be responsible for meeting the cost of loans taken out by landlords to achieve savings from which the occupier will be the principal beneficiary. The extent to which occupiers are prepared to contribute to energy efficiency investments will depend on many factors including: market conditions, their confidence that they will see the benefit of reduced energy costs and the availability of other similar properties in the locality. If there are large numbers of better-rated, but otherwise comparable properties nearby, it will affect the bargaining strength of the parties. 
Vacancy rates 
Landlords will be responsible for repayments of finance taken out to fund energy efficiency improvements when properties are un-let. Where properties will be vacant for long or frequent periods during the term of a loan, there will be an impact on net income. 

How many properties are likely to be affected by the regulations? 

The non-domestic energy performance register maintained by Landmark contains details of ~500,000 EPC ratings for premises in England and Wales. It is not known how many EPCs will ultimately be lodged on the register and so the total number of properties affected is unknown. On average, more than 6,000 new certificates have been lodged each month in the last year. The study for the Green Construction Board had access to ~400,000 records taken from the database in Spring 2013. 
 
Almost 19% (~75,000 certificates) of the analysed dataset are likely to fall below the minimum standard, see Figure 1. A further 17% (~65,000 certificates) are E-rated and would be directly affected either if the threshold is raised after 2018, or as the assessment process is reviewed. For properties failing to meet the minimum standard, landlords must identify cost effective measures to improve the energy performance of the property, until it is no longer below the minimum threshold. 

Typical EPC Benchmarks 

Archtype 
Sector 
HVAC 
Fabric/ Glazing. 
Notes. 
EPC rating. 
EPC Score 
Industrial - warehouse 
Heating 
Poor fabric / no insulation 
Original services 
212 
Industrial - warehouse 
Heating 
1990 Part L / limited insulation. 
Mid-range lighting 
137 
Industrial - warehouse 
Heating 
Late 90s / early 00s (insulated) 
Poor lighting 
137 
Industrial - warehouse 
Heating 
1990 Part L / limited insulationPre 1995 / double 
Modern lighting 
134 
Retail - high street shop 
Air con 
Poor fabric / no insulation 
Original services 
162 
Retail - shopping centre unit 
Air con 
Poor fabric / no insulation 
Original services 
162 
Office 
Heating 
Poor insulation & glazing (1980s or before) 
Original services 
171 
Office 
Heating 
Pre 1995 / double 
Original services 
121 
Office 
Air con 
Poor insulation & glazing (1980s or before) 
Original services 
209 
10 
Office 
Air con 
Poor insulation & glazing (1980s or before) 
Replaced services - post 2000 
189 
11 
Office 
Air con 
Pre 1995 / double 
Original services 
157 
12 
Office 
Air con 
2002 / double 
Original services 
148 
13 
Office 
Air con 
2006 / double 
Original services 
120 
14 
Office 
Air con 
Pre 1995 / double 
Replaced services - post 2000 
125 

How to best manage MEPS (MEES)? 

Bestcompliance can offer a primary solution for this legislation and it is to undertake a unique survey called an EPC Alpha Plus, starting from as little as 
£200. 
We recommend this for any properties with a current "E" grade or below as they are in immediate danger of falling foul of the 2018 M.E.P.S and give a risk management solution.  
Reference 
 
Adam Mactavish, Charles Woollam, Sarah Sayce. (2014). Sustainability: Minimum energy performance standards for commercial buildings. Available: http://www.building.co.uk/sustainability-minimum-energy-performance-standards-for-commercial-buildings/5069388.article. Last accessed 28th Dec 2015