Energy performance – Landlords be prepared

April 2018 is fast approaching, which for private Landlords means a minimum efficiency rating must be achieved on properties they wish to lease out after this date.

The changes are set out in the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (the Regulations) which were issued in accordance with the Energy Act 2011, following a public consultation carried out in 2014. The Regulations introduced minimum energy efficiency standards (MEES).

Who is affected?

Landlords (including public sector landlords) of privately rented domestic or non-domestic property. This article focusses on Landlords of non-domestic (commercial) properties.

What do the changes mean?

From 1 April 2018, Landlords will only be able to grant new leases for properties with an Energy Performance Certificate (EPC) rating of E or above.

As a Landlord, what do I need to do?

In order to carry on letting properties with EPC ratings of F or G, you will need to undertake such improvements to the property that raise the energy efficiency to the acceptable level. Recommended improvements may be made in a report accompanying an EPC, a surveyor's report or a Green Deal advice report.

Are there any exceptions?

It is not always economically viable to undertake all improvement works which would result in improved energy efficiency. The Regulations recognise this by the inclusion of a Seven Year Payback Test. Different rules may also apply where Green Deal finance is being used to fund the improvements.

Additionally, if after all improvement works are made that can be made, the energy efficiency does not achieve an EPC rating of E or above, you may be able to claim an exemption.

Other exemptions also exist:

  • where third party consent cannot be obtained
  • the improvements will devalue the property
  • in certain situations where the appointment of landlord has happened recently.

Of course not all properties are required to have an EPC and this should be considered at the outset. Similarly, (in the case of commercial properties) if a property is not let on a tenancy (for example, is let on licence or under an agreement for lease arrangement), then an EPC may not be required.

Interestingly, commercial leases for under six months and commercial leases for over 99 years are both excluded from the requirements.

Relying on exemptions

If you believe your property may qualify for an exemption, such an exemption must be registered on the National PRS Exemptions Register. This can be done by emailing PRSregisteraccess@beis.gov.uk (currently running as a pilot service).

What are the enforcement actions?

The local Weights and Measures Authority will be responsible for enforcement action under the Regulations. Enforcement may take the form of a compliance notice (generally used to obtain further information relating to a potential breach), a financial penalty (which can be as great as £150,000 per property and per breach), and/or a publication penalty (in which details of the breach, the Landlord's details and financial penalties will be available to the public).

I'm buying a property subject to a tenancy. What do I do?

Check that the property has a valid EPC that shows a rating of E or above. If it does not, as the new Landlord, you will be responsible for improving the energy efficiency of the building on a trigger event. It would be prudent to ascertain whether the selling Landlord has registered an exemption, although such an exemption is not transferable and you will need to either undertake improvement works or make a further application for an exemption.

What's next?

From 1 April 2023 Landlords of non-domestic property will be unable to continue letting a property which is already let if that property does not have a minimum EPC rating of E or higher.

Additionally, the Governments' Clean Growth Strategy (published on 12 October 2017) proposes consultations on increasing the minimum EPC threshold – presumably to D or C.

Practice points for Landlords

  • Consider which properties in your portfolio may be caught by the MEES. Can the costs of improvements be passed on to tenants? Can improvements be incorporated into planned maintenance programmes?
  • Consider impending lease renewals that might trigger compliance with the Regulations. You may benefit from an initial exemption but this may expire after six months.
  • Can you refuse consent to alterations if such works will reduce the energy efficiency of the property? Is this something you need to include in new lease negotiations?

This article is intended as an overview only of the law in this area. If you have any questions regarding the application of the Regulations to your property portfolio, please contact Lucy Tucker on lucy.tucker@michelmores.com.

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