New energy efficiency rules explained

As of Easter Sunday (1 April 2018) a landlord who grants a new tenancy of a domestic property with an EPC rating of below ‘E’ could face a fine of up to £4,000.

This was introduced by the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (MEES regulations).

The majority of domestic properties let by registered providers fall outside the scope of MEES.

However, if a registered provider is granting a tenancy at market rent through a subsidiary or group company that is not registered as a social landlord, the landlord will need to comply.

If a landlord owns a sub-standard property, the ideal solution is to improve the EPC rating to at least an E standard.

However, a landlord can lawfully let a sub-standard property if:

• All “relevant” energy efficiency works have been carried out

Works to domestic properties will only fit within the definition of a “relevant” energy efficiency work under MEES if they can be wholly financed at no cost to the landlord. However, from 2019, it is envisaged that landlords will be obliged to spend up to £2,500 per property. This can add up across a large portfolio.

A landlord is also exempt if there are no works that could be made.

• Consent cannot be obtained

If the consent of a third party is required to carry out works and this cannot be obtained, the landlord may be able to rely on the consent exemption. This applies if the tenant will not give the landlord access to carry out works, or consent is required from a lender, superior landlord or planning authority. Where the landlord has made “reasonable efforts” to obtain consent and it has not been forthcoming, they may be able to register an exemption. They will need to provide copies of correspondence and documents evidencing that consent was sought and refused (or granted subject to a condition they could not reasonably comply with).

• The works would devalue the property

A landlord can let a sub-standard property if a relevant energy efficiency improvement would result in a reduction of more than 5% of the market value of the property, or the building of which it forms part. The landlord must have a report from an independent surveyor setting this out, and the report must be submitted when registering the exemption.

It is difficult to think of many cases where this would apply. However, if the works would reduce the lettable space, the market value could be affected.

• Temporary exemptions

The regulations acknowledge that there are situations in which a landlord may need a grace period.

The list of circumstances includes:

• Where a lease is granted pursuant to a contractual obligation.
• Where a new lease is deemed to have been created by operation of law, for example a fixed- term assured shorthold tenancy is converted into a statutory periodic assured shorthold tenancy.
• From 1 April 2020 (for domestic properties), if a landlord buys a tenanted sub-standard property, it will be able to register a temporary exemption.

A landlord can only rely on a temporary exemption if it registers it on the PRS Exemptions Register, and the exemption will only last for six months. After that, the landlord will either have to show and register a longer-term exemption, or show that the property has an EPC rating of E or above.