Energy efficiency and the private rented sector
Tuesday, 10th May 2016
From the pomp and ceremony of world leaders signing treaties to the devastating images of residents forced out of their homes due to flooding, there is barely a week that goes by when climate change issues are not in the media. In an attempt to halt and reverse global warming and its devastating impact, the UK Government has robust energy efficiency targets in place - and in turn legislation is being imposed on everyone from large corporations to the individual motorist to ensure that these targets are met.
The green agenda has now reached the doorstep of the private residential sector. Some rules regarding the energy efficiency of private rented homes came into force on 1 April 2016, with arguably the more significant changes coming in in April 2018. Landlords need to be aware of these changes now, so remedial action can be budgeted and planned for in the coming months.
Pursuant to the Energy Act 2011 the Government introduced the Energy Efficiency (Private Rented Property)(England and Wales) Regulations 2015 (known as the "MEES" (Minimum Energy Efficiency Standards) Regulations 2015) and the Energy Efficiency (Domestic Private Rented Property) Order 2015 (known as the MEES Order 2015).
The MEES Regulations apply to assured and regulated tenancies and to certain classes of agricultural occupancy. Notably, they do not apply to tenancies granted by registered providers.
There are 2 significant provisions of the MEES Regulations. Firstly, from 1 April 2016, tenants now have the right to request consent from their landlord to carry out ''energy efficiency improvements'' at a property. In turn, landlords cannot unreasonably refuse consent, even if alterations are not permitted under the tenancy agreement. The ''improvements'' permitted are either those listed in The Green Deal (Qualifying Energy Improvements) Order 2012 or improvements to enable the piped supply of gas to the property, where the gas mains is within 23 metres. The costs of these improvements will be met by various sources - including a Green Deal plan (although note that Green Deal finance is impacted by the Green Deal Finance Company no longer receiving funding). Crucially, Landlords are not expected to fund these improvement works. The Regulations do contain detailed sections regarding how landlords have to make requests and what tenants can do if landlords refuse consent.
The greater concern for Landlords will be the part of the MEEDS Regulations. The headline is that, from 1 April 2018, landlords cannot grant new tenancies or renew an existing tenancy of a ''substandard'' property if is given a band F or G EPC rating. Further, landlords cannot continue to let any residential property with an F or G rating after 1 April 2020. The enforcement of these Regulations will be carried out by local authority trading standards officers, who can impose fines and publish details of non-compliant landlords.
Landlords will have to carry our energy efficiency improvements works to substandard properties. Again, what is classed as an energy efficiency improvement is done with reference to the Green Deal Order and again it is intended that there will be various sources of funding for these works - but ultimately a landlord may have to fund the works himself if funding cannot be obtained from other sources. The Regulations do provide that, in theory, landlords can seek to recover these costs from their tenants via rent or service charge payments if permitted.
The MEES Regulations do provide 3 exemptions which a landlord can register for if they wish to grant a new let or continue to let a substandard property in breach of the regulations. (It was envisaged that the registration was going to be from 1 October 2016 - but legislation is before Parliament which is going to delay the opening of the PRS register until 1 October 2017). If tenants effuse to allow access, or to consent to works, then there is a ''consent'' exemption, a ''devaluation'' exemption if works would reduce market value of a property by more than 5%, or a ''temporary'' exemption, designed to cover give landlords become ''accidental'' landlords following e,g the insolvency of the tenant up to 6 months to comply with the MEES Regulations.
If you are a landlord with a portfolio of new build apartments, the MEES Regulations will probably not concern you. But landlords of older properties do need to be aware of these changes. It is believed that these Regulations will affect as many as one in five buildings, possibly more in the South West. Further, landlords should be aware that this may well be the tip of the iceberg - there is a concern that, over time, the minimum EPC rating will be increased to D or even C.
April 2018 and April 202 seem a long way off. But these dates will quickly be upon us. Landlords need to be assessing now whether their lettings properties are going to comply - and if not start taking steps now to plan works.