Tax breaks lessen MEES impact on commercial property landlords

Tax System Helps Landlords Modernise Properties to Reduce Risk Of MEES Impact Since April 2018

LED Lights

Approximately 18% of commercial properties in England and Wales have a low efficiency Energy Performance Certificate (EPC) rating of F or G. Under the new Minimum Energy Efficiency Standard (MEES) legislation in England and Wales, effective since 1st April 2018, landlords are no longer able to let these properties without improving their EPC rating.

Whilst careful review of some EPCs may help to improve the rating of a small minority, most F or G rated properties will require a degree of refurbishment and modernisation before a new lease can be granted.  

Some landlords have simply extended current leases to buy themselves time; but from 1st April 2023 ALL non-domestic buildings will have to comply with a rating of E or better to be legally let at all – irrespective of the lease term! 

100% Enhanced Capital Allowances

Enhanced Capital Allowances (ECAs) provide 100% tax relief on certain energy efficient and water conservation expenditure.  Hence, if the refurbishment works are carefully designed and specified to take account of the Energy and Water Technology Lists, and the relevant tax legislation, HMRC will effectively contribute towards the building’s upgrade, whilst improving the EPC rating too.

ECAs cover a wide range of asset categories, including amongst others, low-energy LED lighting, low-flow taps, showers and WCs as well as certain Heating, Ventilation & Air Conditioning (HVAC) systems, pumps and motors.  Additionally, more traditional improvements such as replacing windows with double (or triple) glazing, or adding external thermal renders or cladding, also qualify for tax deductions under s.28 Capital Allowances Act 2001.

Tax proactive landlords have been using these capital allowances incentives to help fund the cost of improvements so that their properties are compliant with the new MEES rules.  If you have properties affected by the EPC rating restriction and are considering capital improvements, E3 Consulting can help in identifying works that qualify for 100% ECAs or indeed, the wider Plant & Machinery Allowances (PMAs) or Integral Feature Allowances (IFAs) – or via the current Annual Investment Allowances (AIAs) that also provide 100% tax relief, albeit capped to the first £200,000 in any tax year.

MEES - The Facts

The Minimum Energy Efficiency Standard (MEES) was introduced in March 2015 by the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015.  The MEES Regulations originate from the Energy Act 2011 which contained the previous coalition government's package of energy efficiency policies including the ‘Green Deal’.

These new rules restrict landlords from renewing existing tenancies or granting new tenancies unless the building has an energy performance certificate (EPC) rating of E or above, except where the landlord registers an exemption.

Over the next five years, landlords must act to improve their commercial properties as from 1 April 2023, landlords will not be able to continue to let any buildings which have an EPC rating of less than E unless the property is properly exempted.  Residential properties subject to EPCs only have until 1 April 2020 to comply – so ‘the clock is ticking’ and landlords need to decide on a strategy and take action sooner, rather than later.

Why has Government introduced MEES?

The built environment has been identified by Government as a major contributor to Greenhouse Gas (GHG) emissions and so poses a significant threat to the UK Government meeting its carbon reduction commitments for 2020 and 2050.  Government made a good start exceeding its first Carbon Budget with emissions down 42% on the 1990 levels in 2016, but concerns remain about achieving the 4th Carbon Budget (2023-2027).  Hence, increasing the rate of reduction has become a centerpiece of Government policy.  Building Regulations address energy efficiency performance of new buildings and MEES is the methodology to tackle the UK's existing legacy building stock – a considerably bigger issue!

MEES does not apply to:

  • buildings which are not required to have an EPC:
    • such as industrial sites,
    • workshops,
    • non-residential agricultural buildings with a low energy demand,
    • certain listed buildings,
    • temporary properties,
    • holidays lets or
    • those building schedule for demolition.
  • buildings without a valid EPC, i.e. the EPC is over 10 years old or where there is no EPC.
  • tenancies of less than 6 months (with no right of renewal).
  • tenancies of over 99 years.


Landlords can let a building to which the MEES Regulations apply but which is below the minimum standard if any of the exemptions apply.  These are:

  • The ‘Golden Rule’: where an independent assessor determines that all relevant energy efficiency improvements (double-glazing, pipework insulation, wall-insulation, LED lighting) have been made to the property or that further improvements would damage the fabric or would not pay for themselves through energy savings within seven years.  
  • Devaluation: where an independent surveyor determines that the relevant energy efficiency improvements that could be made are likely to reduce the market value of the property by more than 5%.
  • Third Party Consent: where consent from persons such as a tenant, a superior landlord or planning authorities has been refused or has been given with conditions with which the landlord cannot reasonably comply.

Exemptions must be registered on the central government PRS Exemptions Register from April 2018.  Exemptions are only valid for five years and cannot be transferred to a new landlord.

Penalties for Non-compliance

The MEES Regulations will be enforced by Local Weights and Measures Authorities (LWMAs).  The penalty for renting out a property for a period of fewer than three months in contravention of the MEES Regulations will be equivalent to 10% of the property’s rateable value, subject to a minimum penalty of £5,000 and a maximum of £50,000.  After three months, the penalty rises to 20% of the rateable value, with a minimum penalty of £10,000 and a maximum of £150,000.

Tax Saving Opportunities

As with most legislative changes, in addition to onerous requirements and obligations, they can present useful opportunities to explore the potential to increase asset value through making energy efficiency improvements and combining these with other refurbishment programs.  Ultimately higher rental values might be possible from improved, more energy efficient buildings.

A Helping Hand

E³ Consulting’s award winning team of property tax surveyors has supported a wide range of property owners, occupiers developers and investors to optimise the tax breaks from their property expenditure.  Our projects include many refurbishment schemes, as well as new build and ‘second-hand’ acquisitions – identifying tax savings not readily recognised by some mainstream accountants and tax advisers.

E³ Consulting operate from offices in Southampton and London, working with clients that own, operate or invest in property across the UK and overseas.  If you would like to discuss any aspects of this legislation and its implications for you or your projects further, then please contact one of our team, or managing director, Alun Oliver, for a no fee, no obligation initial discussion to see how we could help evaluate, evolve and enhance the available property tax savings from any of your past, present or future property expenditure.


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