If you are a current landlord or you are considering taking on a buy to let, you’ll need to be aware of the new legal standard for minimum energy efficiency effective from April 2018. The new regulations make it illegal to grant new leases of energy inefficient commercial or domestic properties in England and Wales after 1st April 2018.
The regulations do not apply to sales, but if you are considering buying a property to let and the Energy Performance Certificate (EPC) rating is below E, as of 1st April 2018, for new tenancy agreements, you’ll need to meet the required standards before you can rent the property out.
This is one of the most fundamental pieces of legislation in recent years affecting the rental potential of UK properties. Under the MEES regulations landlords will face a hefty penalty if they let a property with an F- or G-rated EPC.
Although MEES isn’t being phased in until 2018, it is important for landlords and tenants to consider what impact the legislation will have, particularly for tenancies extending beyond 2020 and 2023.
Here, independent blogger Lloyd Wells – working with Eastbourne based Chartered Surveyor firm Southdown Surveyors, has put together a guide to help you with some of the ins and outs of the forthcoming legislation.
What is the minimum energy efficiency standard (MEES)?
Introduced in March 2015, regulations were laid out for a minimum standard of energy efficiency in all private rented property in England and Wales (The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015).
The MEES regulations, due to be made a UK Statutory Instrument on 1st April 2018, originate from the Energy Act 2011. The Energy Act 2011 contained a package of energy efficiency policies, including the Green Deal. The Green Deal was a government initiative to improve energy efficiency in UK households. Government funding for the domestic scheme was stopped in 2015. The responsibility for landlords to meet minimum efficiency standards is being covered by MEES.
From 1st April 2018 landlords must not renew existing tenancies or grant new tenancies if the building has less than the minimum EPC rating of E (unless an exemption applies – see below). From 1st April 2020, landlords will be unable to continue letting a substandard domestic property. From 1st April 2023, landlords will no longer be able to let any substandard buildings which have an EPC rating of less than E. The rules also apply to subletting.
What is an EPC rating?
Energy Performance Certificates (EPCs) are needed whenever a property is built, sold or rented out. The property owner must order an EPC for potential buyers or tenants before marketing the property for sale or rental. EPCs contain information about the properties energy use and typical energy costs, as well as recommendations about how to reduce energy use. The EPC grades the property’s energy efficiency from A (most efficient) to G (least efficient). The EPC is valid for 10 years. Some types of building are exempt.
Why introduce MEES?
The government has identified that the built environment contributes considerably to Greenhouse Gas (GHG) emissions, thus posing a threat to the UK meeting its proposed carbon reduction targets by 2020 and 2050. Current building regulations take care of energy efficiency in new buildings. The MEES regulation will bring older properties up to acceptable energy efficient standards. The minimum standard could be subject to change in the future.
Exemptions and exceptions
Some buildings and some tenancies will be exempt from MEES. Exemptions cannot be transferred to buyers, but new landlords will have 6 months to improve the property or demonstrate that an exemption still applies. Exemptions last for 5 years. Temporary exemptions may be applicable for 6 months in some cases.
The following buildings are exempt:
· Buildings and monuments protected because of their architectural and historical standing where certain energy efficiency requirements would unacceptably alter their appearance or character. This includes listed buildings.
· Temporary buildings which will be used for up to 2 years.
· Residential buildings with an intended use of 4 months or less.
· Stand-alone buildings with total usable floor space of less than 50 square metres.
· Buildings which are not required to have an EPC, such as industrial sites and non-residential agricultural buildings with a low energy demand.
Also some lettings will not trigger an obligation to carry out energy efficiency works. These are:
o Commercial properties with short-term lettings under 6 months, or leases of more than 99 years.
o Domestic properties where lettings are not assured or regulated tenancies, and lettings by public landlords such as government departments, local authorities and housing associations.
There are some other exceptions to the rule. They are:
§ The Golden Rule - If the landlord has made energy improvements that are cost-effective as per the Golden Rule in the Green Deal plan. The Golden Rule applies when an independent assessor has determined that all relevant energy efficiency improvements have been made to the property OR that improvements could be made but would not pay for themselves in energy efficiency savings over 7 years.
§ Property devaluation – if an independent surveyor finds that relevant energy efficiency savings to bring the property up to an ‘E’ rating are likely to reduce the value of the property by more than 5 per cent.
§ Third Part Consent – where consent for energy efficiency improvements from a tenant, a superior landlord or planning authorities cannot be obtained.
Penalties for non-compliance with MEES are based on the rateable value of the property and range from £2,000 up to £150,000. The domestic property penalties are capped at £5000.
What to do if your property falls below the MEES
In the event your property falls below the expected energy efficiency standard, it is worth seeking professional advice regarding what improvements can be made. An EPC carried out by an independent RICS surveyor will clarify where the property falls down on energy efficiency and what can be done to improve the rating.
How will non-compliance affect tenants?
Even if a landlord is the subject of enforcement action for a breach of the MEES legislation, he or she cannot force the tenant to vacate the property in order to comply with MEES.