A Landlord's new peril? Minimum Energy Efficiency Standards - MCP Q & A

MCP's Legal Assistant Kimberley Fox from our Commercial Property department provides a summary of what the Energy Efficiency Regulations have in store for landlords of residential and commercial property.

What are the Regulations?

The Energy Efficiency (Private Rented Property) Regulations 2015 (“Regulations”) were introduced in an attempt to reduce the number of properties that waste energy, by establishing Minimum Energy Efficiency Standards for both Residential and Commercial properties that are privately rented.

What changes are proposed for landlords of residential properties?

Current legislation is based on the ‘no cost to the Landlord’ principle. This means that Landlords of properties with an Energy Performance Rating of ‘F’ or ‘G’ are only required to make improvements to the property where the cost of any improvements are wholly subsidised by third parties (for example funds obtained under the Green Deal Finance Plan or the Energy Company Obligation).

Unfortunately the Green Deal Finance Plan lost Government funding in 2015 and the Energy Company Obligation is not scheduled to continue beyond 2022. In order to address the issue of ‘energy wasting’ properties, the Regulations introduce an obligation on landlords to contribute to Energy Efficiency improvements to those properties with a rating of ‘F’ or ‘G’. The contribution is to be capped at £2,500.00, but this nevertheless adds to the lengthy list of landlords’ costs and duties.  

The Minimum Energy Efficiency Standard proposed is a rating of ‘E’ for residential properties that are privately rented. In practice, a Landlord who spends £2,500.00 on improvements which fail to bring a property up to an Energy Performance Rating above an ‘E’ may be able to register for an exemption which would last for 5 years.

What about landlords of commercial properties?

Unlike residential properties that are privately rented, landlords of commercial properties are not always required to commission an Energy Performance Certificate (“EPC”) as a number of exceptions apply.

 At present, the task for landlords of commercial properties is to understand whether an EPC is required at all. It is proposed that commercial properties that do require an EPC will be caught under the Regulations and will be required (at their own expense) to bring the Energy Performance Rating up to at least an ‘E’ before letting a property to a tenant.

What are the timescales involved?

Residential Property

From 1 April 2018 landlords of residential property will not be permitted to let a property to new or existing tenants if the property has an EPC rating of ‘F’ or ‘G’.

Further to this, from 1 April 2020 landlords must not continue to let a property if the EPC rating is ‘F’ or ‘G’. 

Landlords may wish to register the property as ‘Exempt’ from the standards; but this will only be available in limited circumstances.

Commercial Property

Similar rules are proposed to apply to commercial property.

From 1 April 2018 landlords of commercial property will not be permitted to let a property to new or existing tenants if the property has an EPC rating of ‘F’ or ‘G’, subject to any applicable exemptions.   

From 1 April 2023 landlords must not continue to let a property if the EPC rating is ‘F’ or ‘G’, subject to any applicable exemptions.

Properties that do not require an EPC and tenancies with a term of 99 years or more will fall outside of the scope of the Regulations. Various other exemptions are available although they should be considered seriously before registering the property on the Exemptions Register.  

A breach of the Regulations or false registration of an exemption could lead to the Local Authority serving a Notice and imposing financial penalties. Such penalties for non-compliance could be significant.

What do landlords need to do next?

It is advisable for all landlords to now assess whether their rented properties require an EPC and whether their rental properties fall within the scope of the Regulations. The Exemptions Register goes live on 1 April 2018 for any properties that fall outside of the scope of the Regulations.

For landlords of commercial property it is recommended that you begin reviewing the contractual lease terms, the timings of any break dates and the timings of any lease renewals in light of the timetable set for the Regulations.

For further information please speak to a member of our Property Team.