the real implications for commercial property...dilapidations | building surveying | project work |...

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The MEES Regulations:

The Real Implications for Commercial Property

Ben Strange MRICS

Chartered Building Surveyor

Director, Mobius Building Consultancy

Building Surveying |Dilapidations | EPCs |Project Work | mobiusbc.co.ukMEES |

Learning Objectives/Agenda

1. MEES Basics

2. EPCs – a critique

3. The scale of the issue – why D and E properties are not safe

4. Example properties

5. Implications:

a. Dilapidations

b. Rent Reviews

c. Valuation/investment

6. Wider impact on surveyors

7. Strategies


MEES – The basics

1 April 2018 – no granting of new/renewal/extension leases

1 April 2023 – enforcement applies to all active leases

“From 1 April 2018 landlords must not let any such sub-standard non-domestic property to new tenants,

or renew or extend an existing tenancy agreement with existing tenants”

p.13, Dept for Business, Energy & Industrial Strategy


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EPCs – Spotting inaccuracies


Are EPCs accurate?

Available Data Assessor Skill

Software used

Accreditation Body

NOS Level

Client Demand Part L Bdg Regs

Measurement anomalies Identifying lightbulbs

Concealed plant

Employer conventions

MEES Impact

Accreditation auditCorrect property/floor?

Whole building vs one floor

BMS systems

Postcode errors

Property Assessor

Conventions

E?


Spread of EPC ratings

740,019

Non-domestic

EPCs registered

Source: DCLG (2 Oct 2017)


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Why are D/E rated properties at risk?

1.How are EPCs created?

- Building Fabric

- HVAC systems

- Lighting

EU Energy Performance of

Buildings Directive (2007)

Energy Performance of Buildings

Regulations (2012)

2. Building Regulations

EPC rating directly linked to

Revisions:

2002, 2006, 2010, 2013, 2016 …?

The result?

D/E/F/G ratings

65%

Like for like EPC assessments

reported as falling 2 ratings upon reassessment


The EPC Lottery

-86,000 sq ft

-1984 built

-EPC E

(dated 2012)


What kind of properties are affected?


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• Grade II Listed• Built 1963

• Air-conditioned

• Raised Floors• 700,000 sq ft multi-

tenanted



• Reading office

• Built 2000

• A/C system

• C. 8,000 sq ft• EPC = C??



• Central Bristol• c. 3,000 sq ft

• Currently to let


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• M1 office• C. 90,000 sq ft

• 10,000 sq ft to let

• No a/c present• Tenant fit out?



• Built 2001 to 2002 Bdg Regs• 4 Pipe Fan Coil A/C

• 320,000 sq ft

• EPC dated 2009


Dilapidations – the MEES catalyst

Lease expiry 2019

Full repairing lease

Landlord claim in sum of

£35/sq.ft. (say £11,000,000)

“Had we undertaken scheduled repair,

redecoration, reinstatement, compliance, etc.

works, the building we would have yielded up

would have still been unletable and our works

rendered valueless”

Section 18 (1) arguments:

- Supersession- Diminution in value

Tenant response:Replacement EPC before expiry

Settlement £0?


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Dilapidations blunder?

£11,000,000

£5,500,000

£0

-£2,500,000

-£7,500,000

-£10,000,000

-£5,000,000

£0

£5,000,000

£10,000,000

£15,000,000

Claim Anticipated Settlement Actual Settlement MEES Outlay inc Loss of rent, etc.


- c.200,000 sq ft single tenant

- Lease end 30 Oct 2030

- EPC dated 2012

- No breaks

- What happens in 2023?

Rent review Oct 2020 –opportunity for negotiation?

EPCs = 10 year validity

MEES and Rent Reviews


MEES’ impact on Capital Values

What is the value of an unletablebuilding?

Is a C/D/E rated property a sound investment?

What would the bank say?


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What else will MEES impact?

Planning

Rating

Rental Values

Surrender Negotiations

Due Diligence

Property Management/ Service Charge

PII Claims?


MEES strategies?

Lease re-gear?

Service Charge works?

Capital Allowances?

Do works?

Sell? Do nothing?

Exemptions?

Redevelop?

Re-do EPC?


Questions

“The single most significant piece of legislation to affect our

existing building stock in a generation”

John Alker, Director of Policy & Communications

UK Green Building Council


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