Following the passing of the Energy Act 2011, the government has introduced The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (the Regulations) setting minimum energy efficiency standards (MEES) for domestic and commercial rented property.
A higher rating indicates greater energy efficiency. The average energy rating for a home in England & Wales is Band D (60).
Most properties in England & Wales require an Energy Performance Certificate (EPC) which rates the property’s energy efficiency between Band A (most efficient) to Band G (least efficient). An EPC contains information about a property’s energy usage and typical energy costs along with recommendations on how to reduce energy use which in turn would be likely to reduce costs.
Under the Regulations, properties must have a minimum Band E rating. From 1 April 2018, it will be unlawful for landlords to enter into new lettings or renew current tenancies where a property does not meet the MEES. This will extend to existing residential tenancies from 1 April 2020 and existing commercial tenancies from 1 April 2023. The Regulations do not apply to sales.
Those properties which do not require an EPC, and therefore are not subject to these Regulations, include:
- Places of worship;
- Temporary buildings that will be used for less than 2 years;
- Stand-alone buildings with a total floor space of less than 50 sqm;
- Industrial sites, workshops and non-residential agricultural buildings which have minimal energy usage;
- Some buildings that are due to be demolished;
- Holiday accommodation rented out for less than 4 months a year or let under a licence to occupy;
- Listed buildings; and
- Residential buildings used for less than 4 months a year.
In addition, the following types of lettings would not be subject to the Regulations:
- Domestic properties: those that are not assured or regulated tenancies and lettings by public landlords (e.g. government departments, local authorities and housing associations); and
- Commercial properties: short-term lettings under six months and leases of more than 99 years.
An EPC is valid for a duration of 10 years and may not always account for any improvements made to the property during this period. Landlords should therefore commence an early review of their properties and arrange for an up to date energy assessment to be undertaken so that any necessary works can be carried out in a timely and cost effective manner. An EPC would list recommended measures to improve the current energy rating, however, as long as the minimum rating is achieved, it is for the landlord to choose which works to carry out. Landlords may even find that simply renewing the EPC could bring their properties to a Band E rating without having to undertake any works.
Only appropriate, permissible and cost-effective improvements are required under the Regulations. As such, landlords may be exempt from reaching MEES where they can provide evidence of one of the following:
- An independent assessor determines that no further works could be carried out for the purpose of improving energy efficiency without incurring costs greater than the expected long-term financial savings from such improvements;
- An independent assessor determines that appropriate improvements would result in a likely reduction in the market value of the property by more than 5%; or
- Where third party consent (e.g. superior landlord or planning authority) is required to carry out the appropriate works and such consent has been refused or where the landlord cannot reasonably comply with the conditions attached to such consent.
All exemptions must be registered on the government’s PRS Exemptions Register which is currently due to go live on 1 October 2017. Exemptions need to be reviewed every five years to ensure they are still applicable.
Where an exemption is not registered, is no longer applicable, or where a landlord otherwise fails to meet MEES, a civil penalty for non-compliance can be imposed by the local authority against the landlord. It should be noted that any breach by the landlord does not affect the validity of the tenancy itself and so cannot be used as a reason for non-payment of rent.
Whilst these Regulations predominantly affect landlords, there could be financial implications for tenants where they occupy a property on full repairing terms. Lending criteria is also likely to be under review to ensure lenders obtain sufficient information on valuation and continue to effectively monitor their security.