New energy efficiency standards

From 1 April 2023, it will be unlawful to continue to let a sub-standard non-domestic property. Alexandra Holsgrove Jones, senior knowledge lawyer at law firm TLT, highlights what this will mean for landlords of pubs and bars.

The Energy Efficiency (Private Rented Property)(England & Wales) Regulation 2015 (the MEES Regulations) have been around for some time now. Since 1 April 2018, it has been unlawful to grant a new tenancy of a sub-standard property – currently a property with an EPC rating of below E – unless an exemption applies and has been registered. On 1 April this year, this prohibition will be extended to encompass properties already subject to tenancies, vastly increasing the number of properties affected. 

So, if you have properties with EPC ratings of below E, you need to act quickly to ensure that you won’t be in breach of the MEES Regulations. A breach could result in a fine of up to £10,000 and ‘naming and shaming’ on the PRS Exemptions Register. 

If the EPC is no longer valid (because it is more than ten years’ old), the letting will not be within the scope of the MEES Regulations. However:

• Next time a trigger event occurs (e.g. a new letting) that requires you to obtain a new EPC, you will have to get the property up to the required standard before granting the new tenancy, or register an exemption;
• It is likely that, in the future, landlords will be required to have a valid EPC at all times. This was proposed in a consultation in 2021 and we are awaiting the government response.

When will an exemption apply?

• If you have carried out all relevant energy efficiency improvements, or there are none that could be made, and the EPC rating is still below E. In order to come within the definition of a ‘relevant energy efficiency improvement’, the works have to satisfy what is known as the seven-year payback test. Broadly speaking, this means that the expected value of savings on energy bills expected to be achieved from the improvement over seven years is the same as, or greater than, the repayment cost. It remains to be seen what impact soaring energy bills will have on calculations. 
• If consent is required to the works and it cannot be obtained, this may be because the property is subject to a lease, and the lease does not give the landlord a right of access to carry out such works, and the tenant will not agree to the landlord entering to do them. It may also be relevant if the property is listed, and listed building consent cannot be obtained.
• If a report sets out that the installation of improvement works would reduce the market value of the property, or the building of which it forms part, by more than 5%, the landlord may be able to rely on the devaluation exemption. 
• A temporary exemption (which lasts for six months) may also be available if you buy a tenanted sub-standard property on or after 1 April 2023, or if a new lease is entered into following the lease renewal procedure.

It is crucial to note that you can only rely on an exemption if you have validly registered it on the PRS Exemptions Register. If you buy a property, against which an exemption was registered, that exemption will not pass to you, as buyer – you will need to register a new exemption.

Action to take now:

• Review EPCs – if there are any with ratings below E, action needs to be taken.
• Check whether any works be carried out quickly and cost efficiently to get the rating up to E. For example, would changing the lightbulbs improve the EPC rating?
• If works cannot be undertaken to improve the rating to an E or above, you will need to register an exemption. 
• Exemptions generally last for 5 years (unless they are temporary exemptions, which last for 6 months). However, note that if you are relying on the consent exemption because a tenant’s consent is required, and they will not provide it, the landlord may no longer rely on the exemption once that tenant's tenancy has come to an end.
• Make sure that you diarise when the exemption expires so that you can ensure that you don’t fall foul of the MEES Regulations at a later date.
• If EPC ratings are near to E, consider scheduling in improvement works, as, in all likelihood, minimum ratings will increase to C in 2027 and then B in 2030.

Q&A 

Q. Can I do bingo nights in my bar- it seems to be a popular game again?

In short, yes; but subject to strict rules: Pubs and bars must ensure that no participation fee is charged (including as part of a drink or food offer) and the maximum stake limit of £5 per person, per game is applied. Also, you cannot exceed the maximum of £2,000 per week in stakes/prizes. Also, you cannot deduct any money from the stakes for fees or admin- all the money must be given as prizes. 

Q. I recently read that a new legislation called Martyn’s Law will be published in the spring. As a pub owner, what do I need to know?

Towards the end of 2022 the government announced details of ‘Martyn’s Law’ which is also sometimes known as the ‘Protect Duty’.  In short, this will be a new law which will place obligations on those responsible for certain locations and venues to consider the threat from terrorism and implement appropriate and proportionate mitigation measures.  The new law is named as a tribute to Martyn Hett who was killed in the Manchester Arena attack.  The new law is intended to make sure that people are better prepared, ready to respond and know what to do in the event of a terrorist attack.

The current proposals include pubs and bars and there are two tiers depending upon the maximum occupancy of the premises.  Most larger pubs will fall within the standard tier which applies to locations with a maximum capacity of over 100.  Under the current proposals the new law will not create any new obligations for premises with a maximum capacity of 100 people or less.

This article was first published by Pub & Bar.