From 1st April 2018, Landlords renting out properties in the private sector will need to achieve a minimum energy performance rating of E on an Energy Performance Certificate (EPC).
These standards, imposed by the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015, will apply on the grant of a new tenancy or renewal of an existing tenancy from 1st April. The regulations will be extended to cover existing tenancies from 1st April 2020.
Only certain types of tenancy are caught by the Regulations, but these include the most common types: assured tenancies (shorthold or otherwise).
Under the Regulations, it will be unlawful to rent a property that does not meet these minimum energy efficiency requirements unless the property meets one of the exemptions. Landlords breaching the requirements will be subject to a penalty of up to £4,000.
Landlords will always have to carry out improvements where:
- The property has a current, valid EPC (which will be no more than 10 years old); and
- The property has an energy efficient rating of the property of F or G on an EPC (i.e. below the minimum energy efficiency standards); and
- The property is required by law to have an EPC because (a) it is being rented out, or has in the past been rented out; or (b) it has been sold; or (c) it has been improved, and Building Regulations mean that an EPC is required.
The EPC must not be more than 10 years old. Therefore, if an EPC was obtained at some point in the past when it was necessary but is now more than 10 years old, there is no requirement to have another one produced. A further EPC will need to be obtained the next time the property is sold or let. This means that if the Landlord is already renting a property on a lengthy tenancy on 1st April 2020 when the Regulations start to apply to existing tenancies, and the property’s EPC has expired, there is no requirement to obtain a new EPC at this point – the requirement arises at the point he/she re-lets or sells the property.
Self-contained flats and houses require their own individual EPC when they are rented or sold. Whilst units that are not self-contained do not need an individual EPC, it is necessary to consider the status of the whole building. If the bedsit is within a property that has an EPC and that property is rated F or G for energy efficiency, improvements will need to be made before the bedsit can be let, unless an exemption applies and is registered.
1: A landlord intends to rent out a property from May 2018 to a new tenant. If the property was already required to have an EPC and in fact, has one which is less than 10 years old, this EPC can be relied on when renting out the property. If however the EPC is more than 10 years old, or if there is no EPC (because there has been no sale or rental previously) the landlord will need to obtain an EPC. If that shows a rating of F or G, the Landlord will need to make improvements to meet the minimum energy efficiency standards unless (a) an exemption applies and (b) the exemption is registered.
2: A landlord is already renting a property under a 10 year tenancy. An EPC was required in 2016 and showed a G rating – below the minimum energy efficient standards. As the Regulations will not apply to existing tenancies until April 2020, the landlord does not need to make improvements yet. To continue to rent the property legally, she will need to improve the property to meet the minimum standards by 1st April 2020 or register an exemption if one applies.
3: A landlord rented his property in 2009 and an EPC certificate was obtained at the time. When the Regulations come into force for existing tenancies on 1st April 2020, the EPC will have expired. The Landlord is not required to obtain another EPC as the tenancy is continuing. He will only need to obtain an EPC if he relets or sells the property after the tenancy expires (whether to the existing tenant or someone else).
Certain exclusions apply, such as buildings that have special architectural historical merit where meeting the energy efficiency requirements would unacceptably alter their character or appearance. Another notable exclusion is residential property which is intended to be used for less than 4 months of the year.
Further exclusions apply in a number of circumstances: for example, where the landlord has undertaken all possible cost-effective improvements but the property remains below the minimum E rating, or where an appropriately qualified independent surveyor provides evidence that the works will devalue the property by more than 5%.
The rules for business tenancies are different, as are the dates when the Regulations will apply. Minimum energy efficiency requirements will apply from 1st April 2018 where a new tenancy is required, but not until 1st April 2023 for existing tenancies. Note that certain property will be considered a business (i.e. non-domestic) property even though it is rented to private tenants: for example, where a house containing bedsits or a block of flats is rented out as a whole.
What improvements are required?
The type of improvement work which can be required is any energy efficiency improvement work which qualified for Green Deal and the installation of gas for an off-gas property so long as the mains are within 23 meters from the property.
It is up to the Landlord to decide which improvement works from the available options need to be carried out, with the overall objective of meeting the E energy efficiency rating as a minimum.
The Regulations only require that appropriate, permissible and cost-effective improvements are carried out. Where these prove impossible, an exemption may be available.
How can improvement works be funded?
Landlords have the option of taking a loan with one of a number of private providers via the Green Deal Finance Company, which was resurrected in 2017 – more information can be found on the Green Deal Finance website. However, like the old Green Deal scheme, interest rates are still quite high and Landlords may find a better deal with their bank.
Possible future changes
The government has proposed that there should be a cap on the amount that must be spent on upgrades of £2,500, “to protect landlords from excessive costs”. It is currently consulting on this proposal and responses are invited up to March 13 2018.
The above is intended as a general overview of the new Regulations and is not a substitute for legal advice. Further information for residential and business landlords can be found here: Guidance to landlords of privately rented domestic and non-domestic property on complying with the 2018 ‘Minimum Level of Energy Efficiency’ standard (EPC band E).