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Landlords are you ready for the new energy rules?

From April 2018 in England and Wales it will be unlawful for a landlord to let commercial property with an EPC rating of F or G, unless an exemption applies; and from April 2023, the restriction will apply to all lettings, including existing lettings.

For landlords, freehold investors, developers and lenders this new legal standard brings threats but also opportunities.

The most obvious threat to landlords is the financial cost of upgrading non­compliant buildings and the potential loss of income if a property cannot be rented out. The provisions in existing leases may affect the statutory obligations of landlords under the MEES Regulations and may affect the position of the Landlord in dealing with the MEES Regulations.

There are, however, opportunities for landlords to engage with tenants to enter green leases where the environmental management and costs of the property, such as energy efficiency improvements and utility bills, are shared for the benefit of both parties and to explore the potential to increase rental and asset value through making energy efficiency improvements and combining these with other refit upgrades.

Landlords can prepare now by auditing their portfolios to understand which properties are within scope of the MEES Regulations and whether exemptions might apply, carrying out energy assessments to check whether the EPC ratings for their properties are correct understanding how lease terms, break dates, renewals dates and planned refit periods fit with the MEES timetable above and reviewing their leases to understand their rights.

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