How will my rented property be affected by the new Energy Efficiency rules?

From 1st April 2018, the Government is introducing new energy efficiency requirements that will make it unlawful to let residential properties with an Energy Performance Certificate with a rating of below an E.

The new Energy Efficiency rules:

The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 established a minimum level of energy efficiency for privately rented property in England and Wales.

This means that, from the 1st April 2018 landlords of privately rented domestic and non-domestic property in England or Wales must ensure their properties reach at least an Energy Performance Certificate (EPC) rating of E.  This means, you can only grant a new tenancy and a renewal of an existing tenancy as long as your property has a minimum energy efficiency rating of A – E.

So, if your property has a rating of F or G, then you will be letting the property illegally.

These requirements will then apply to all private rented properties in England and Wales from 1st April 2020 for domestic properties, and from 1st April 2023 for non-domestic properties, whether they are within their fixed term or running as a periodic tenancy – unless there is an exemption.

Exemptions:

There are several exemptions from compliance and therefore allow a property to be legally let with an EPC rating below “E”:

1.      Where third party consent is denied – where consent from person such as a tenant, a superior landlord or planning authorities is refused or has been given with conditions with which the landlord cannot reasonably comply;

2.      If energy efficiency improvements would negatively impact the value of the property or:

3.      If all improvements possible at no upfront costs to the landlord have been undertaken but the rating is still below an “E”.

In all instances, the exemptions are only valid for five years and cannot be transferred to a new landlord.  Also all exemptions must be registered on the central government PRS Exemptions Register.

Penalties for Non-Compliance

Local Weights and Measures Authorities (LWMAs) will enforce the new regulations and will have powers to impose civil penalties determined by the property’s rateable value.  If a let property is found to be in breach of the MEES Regulations and a penalty imposed, the lease between the landlord and the tenant remains valid and in force.  Where the breach is for less than three months, the fine will be equivalent of 10 per cent of the rateable value of commercial properties, subject to a minimum penalty of £5,000 and a maximum of £50,000 and £2,000 for residential properties.  Where the breach is for more than three months, the fine will be equivalent of 20 per cent of the rateable value for commercial properties subject to a minimum penalty of £10,000 and a maximum of £150,000 and £4,000 for residential properties.

If a landlord breaches the MEES Regulations, the breach will be punished on the exemptions register for a minimum of 12 months.  Below is the Government Guidance for landlords.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/669587/Domestic_Private_Rented_Landlord_Guidance_-_Updated_Version.pdf

What can you do now?

As a landlord you could possibly faced with loss of income if your property becomes available to rent in April but cannot be rented out.  Considerations will need to be given to provisions in existing leases as they may affect the statutory obligations of landlords under the MEES Regulations and how you as landlord can deal with any adverse existing provisions.

However, the MEES Regulations encourage landlords and tenants to enter into more environmentally friendly leases which could ultimately result in lower running costs for the buildings benefiting all parties involved.  Improving the energy efficiency of a building will make the building more attractive to potential renters which could provide scope for charging higher rents.

With time currently on side, landlords should be looking at their properties to determine if they will be affected by the MEES Regulation and whether any exemptions may apply.

There are some Green Deal initiatives launching soon, so it is important to ensure that when these launch, we collectively make the most of these (grants towards works) which will help your properties rental potential, the sales value and bring the properties in line with the minimum EPC ratings.

Follow this checklist and keep a record of your results:

1.      Check whether the property requires an EPC.

2.      If yes, check to see what the current energy rating is.  If it is E or above then relax!  You do not have to do anything and you are compliant.

3.      If it is F or G rating, then check to see what work is recommended and whether you can get funding from a Green Deal.

4.      Note that the underlying rules for EPCs have changed so if you got your EPC years ago,  a new one may have a more favourable result, so consider getting a new one carried out first.

5.      If you can get funding, get the work carried out as soon as possible.

6.      If you can’t get funding or if there is a reason why you can claim exemption, get it confirmed usually by an experts report.

7.      If you are exempt, register your exemption on the National PRS Exemptions Register, along with your supporting documentation.

If you have any questions, then please do not hesitate to contact a member of our team and have a chat about possible solutions.