From 1 April 2018 it will be unlawful for landlords in England and Wales to grant a new lease or tenancy agreement of a commercial or residential property with an energy performance certificate (EPC) rating of F or G. There are some exceptions – which we mention below – but for the most part landlords will need to ensure that their properties have a rating of E or higher by 1 April 2018. In this blog we look at different aspects of the law on energy efficiency standards and consider what steps landlords should take between now and 1 April 2018.
Energy Performance Certificates (EPCs)
EPCs were introduced in 2007, with the regime applying to all residential and commercial properties by October 2008. An EPC must be prepared and made available to potential buyers and tenants when a property is being sold or rented.
An energy assessor visits the property and assesses the energy features such as heating, insulation and glazing. A report is generated giving the property a rating from A (the highest) to G (the lowest).
The green deal was introduced in 2013 to help owners of residential and commercial properties to make energy efficiency improvements at no up-front cost. Take-up levels have not been as high as was hoped and the Government stopped funding the Green Deal Finance Company last year. It is still possible to get funding from other providers.
Property owners can request a green deal assessment. The assessor will produce an advice report recommending energy efficiency improvements and giving an estimate of likely savings on energy bills. The “golden rule” is that any recommended improvements must pay for themselves through reduced energy costs.
If the property owner proceeds with the improvements and uses a green deal finance plan (rather than self-funding the improvements), the loan repayments will be made via the energy bills for the property. The energy company passes the payments to the loan provider. There should be no increase in the energy bills for the property because of the “golden rule”.
Tenants’ Energy Efficiency Improvements
From 1 April 2016, assured shorthold tenants (and some other residential tenants) in England and Wales have the right to request their landlord’s consent to make energy efficiency improvements to rented property. Landlords must not unreasonably refuse consent to improvements.
The new rules apply where the tenant wishes to make a “relevant energy efficiency improvement”. Relevant energy efficiency improvements are those that either qualify for Green Deal funding or are measures taken to connect a property to mains gas.
The improvements must be financed at no cost to the landlord. They may be financed through a Green Deal Finance Plan, provided free of charge by an energy company, financed by a grant from central or local government or another source or funded by the tenant (or a combination of these methods).
Minimum Energy Efficiency Standards (MEES)
The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 introduce the concept of a “sub-standard” property. This means a commercial or residential property with an EPC rating of F or G.
From 1 April 2018, it will be unlawful for a landlord to enter into a new letting (or extend or renew an existing letting) of such a property. From 1 April 2020 it will be unlawful to continue to let a residential property with an F or G rating and from 1 April 2023 it will be unlawful to continue to let a commercial property with such a rating.
There are exemptions from this prohibition on letting, the main exemptions applying where:
. The landlord has in the previous five years already made all relevant energy efficiency improvements or there are no relevant energy efficiency improvements that can be made.
. The landlord has in the previous five years been unable to increase the energy performance rating of the property to E or above:
. due to the tenant’s refusal of consent or refusal to give a confirmation required under a green deal finance plan;
. due to a third party’s refusal of consent or granting of consent subject to unreasonable conditions; or
. because an independent surveyor has advised that this would result in a reduction of more than 5% in the market value of the property.
Steps for landlords to take between now and 1 April 2018
Landlords need to have a strategy in place to comply with the law on energy efficiency standards. Landlords should consider taking some or all of the following steps:
• Carry out an audit of your rental properties to identify any with an F or G rating. Consider extending this to properties with an E rating as the “sub-standard” definition may include E rated properties in the future.
• Take advice on energy efficiency improvements. Consider whether any exemptions apply. If they don’t, take steps to make the recommended improvements. Liaise with tenants to arrange access or arrange to do the works when the property falls vacant.
• Respond to residential tenants’ requests for energy efficiency improvements.
Landlords and tenants can access our guidance notes and template documents relating to tenants’ energy efficiency improvements here. For more information about the 1 April 2016 changes please see here.