Energy Efficiency Minimum Standards
Data shows that there is a disproportionate number of non-energy efficient properties in the Private Rented Sector. While improvements are likely to help tenants the most, there are also benefits for landlords ..."
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Introduction
As a part of the government’s attempts to promote energy efficiency the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 were passed (and were subsequently amended in 2016).
As a result of this new rules came into force with effect from 1 April 2018, which were then amended again in 2019. This article looks at these new rules and how they affect you as a landlord or agent.
Note that new amendments came into force on 1 April 2019 which changed the funding rules. These now provide that landlords must self-fund changes up to a cap of £3.500 including VAT.
The information for this article has largely been taken from the Government guidance document ‘The Domestic Private Rented Property Minimum Standard’ which you will find online here.
The main thrust of the regulations are that since 1 April 2018 there has been a minimum level of energy efficiency for private rented property in England & Wales:
- from the 1st April 2018 – New Tenancies – landlords of relevant domestic private rented properties may not grant a tenancy to new or existing tenants if their property has an EPC rating of band F or G (as shown on a valid Energy Performance Certificate for the property);
- from the 1st April 2020, New AND Existing tenancies – landlords must not continue letting a relevant domestic property which is already let – if that property has an EPC rating of band F or G (as shown on a valid Performance Certificate for the property).
We consider all this in more detail below. But first let’s take a quick look at:
The benefits of energy efficiency
There are many good reasons to improve energy efficiency in rented properties. For example, it will make them more comfortable to live in and will help reduce greenhouse gasses. Also, it will reduce the cost of energy for tenants – considered particularly important for vulnerable tenants. Here is an extract from the guidance document:
Average Annual Cost of Energy
Data shows that the average annual cost of energy for an EPC band G property is £2,860, and £2,180 for an F rated property.
This contrasts with an average annual cost of £1,710 for an EPC band E property.
Therefore a tenant whose home is improved from EPC band G to band E could expect to see their energy costs reduced by £1,150 a year so long as there were no wider changes in how they use energy in the property.
Data shows that there is a disproportionate number of non-energy efficient properties in the Private Rented Sector. While improvements are likely to help tenants the most, there are also benefits for landlords, including:
- increased tenant satisfaction
- reduced void periods
- reduced long-term property maintenance costs; and
- making properties more attractive and easier to let.
Research has also shown that:
- as homes become more efficient, they are void for a shorter period of time (31% less for band B properties than E or F);
- Cold homes have an average of 2 more weeks of rent arrears each year than higher efficiency homes,
- the wider costs of tackling rent arrears and voids are significant and can be reduced. Costs related to chasing overdue rent payments (including legal and court costs) decline by 35% for more efficient homes, and
- Increasing a property’s energy efficiency may also increase its market value
That’s enough of justification. Lets now take a look at how the new rules will affect you.
When will the regulations apply?
The rules discussed in this article will only apply to domestic privately rented properties in England and Wales which
- are let under certain tenancy types, and
- are legally required to have an EPC
Tenancy Types
First – note that the regulations will not apply when the occupation is under a license. See here for some information on residential licenses. In most cases, it will not be possible to convert a tenancy to a license so as to avoid the regulations.
The tenancy types affected by the regulations are:
- Assured tenancies, and
- Assured shorthold tenancies – both regulated by the Housing Act 1988
- Tenancies regulated under the Rent Act 1977 (eg protected tenancies)
- Domestic agricultural tenancies (NB Landlord Law does not cover agricultural tenancies so we will not consider these further in this article).
The regulations do not cover housing in the social housing sector.
Energy Performance Certificate Requirement
The regulations will only apply if the property is legally required to have an Energy Performance Certificate (EPC) under one of the following:
- The Energy Performance of Buildings (Certificates and Inspections) (England and Wales) Regulations 2007
- The Building Regulations 2010
- The Energy Performance of Buildings (England and Wales) Regulations 2012.
Broadly speaking, since 2008 landlords have been required to make an EPC available to prospective tenants. Owners have also been required to make an EPC available to prospective buyers.
Sometimes also an EPC will be required if a building is modified to have more or fewer parts than it originally had and the modification includes the provision or extension of fixed services for heating, hot water, air conditioning or mechanical ventilation (i.e. services that condition the indoor climate for the benefits of the occupants). While some of the improvements which may be made to a property in order to comply with the Regulations may count as a modification for the purposes of the EPC requirements, the majority will not.
More information about EPCs can be found here and here.
HMOs
Note that there is no obligation to obtain an EPC on a letting of an individual non-self-contained unit within a property, such as a bedsit or a room in a house in multiple occupation (HMO).
However, the property in which the unit is situated may already have its own EPC covering that property as a whole. This could be because the property had been bought within the past ten years, or because it had previously been rented out on a whole-property basis.
If a property as a whole has a valid EPC and that EPC shows an energy efficiency rating of F or G, then the owner/landlord will not, from April 2018, be able to issue new tenancies for non-self-contained units within the property until steps are taken to comply with the Regulations.
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About Energy Performance Certificates
Energy Performance Certificates are valid for 10 years. They will be lodged on the EPC register Domestic Energy Performance Certificate Register here (the EPC assessor is responsible for doing this).
You can search the register by the property address or the report reference number.
During the lifetime of an EPC there is no obligation to get a new one – although you may want to, for example, if the property has works making it more energy efficient. A further EPC (after the current one has expired) is only needed the next time a trigger point is reached – ie when it is let to a new tenant.
Note that EPCs relate to the property rather than to the property owner and will remain valid after a property is sold on.
EPCs and multi-let buildings
In some cases, particularly for buildings which may contain multiple self-contained units which are let to different tenants, there may be multiple EPCs covering varying parts of the building. There may also be a separate EPC relating to the envelope of the building as a whole.
These separate EPCs may provide varying energy efficiency ratings and, depending on circumstances, may have been produced at different times.
For the purposes of the Regulations, the minimum EPC requirement is linked to the “property” which is defined as a “building or part of a building”. In cases where the property being let is a discrete unit within a building (for example a room in a house share which is rented out on an individual basis), rather than the entire building, and where there is an EPC for the entire building, but also one for the discrete space being let, then the relevant EPC will be the one for the discrete space.
Where there is only an EPC for the entire building (and where an EPC for the discrete space is not legally required) then that whole building EPC will be the relevant EPC.
The landlord, then, should identify which EPC relates to the “property” that is subject to the relevant tenancy (or tenancies) and take action to improve the energy efficiency rating to the minimum standard, if necessary.
When an EPC may not be required
- A building that is officially protected as part of a designated environment or because of their special architectural or historic merit where compliance with certain minimum energy efficiency requirements would unacceptably alter their character or appearance,
- a building used as places of worship and for religious activities,
- a temporary building with a planned time of use of two years or less,
- Industrial sites, workshops, non-residential agricultural buildings with low energy demand and non-residential agricultural buildings which are in use by a sector covered by a national sectoral agreement on energy performance,
- stand-alone buildings with a total useful floor area of less than 50m² (i.e. buildings entirely detached from any other building).
- HMO’s (Houses in Multiple Occupation, for example, these can be bedsits, hostels, shared houses etc) which have not been subject to a sale in the previous ten years, or which have not been let as a single rental in the past ten years
- furnished holiday accommodation (as defined by HMRC) where the holidaymaker is not responsible for meeting the energy costs
- (Sometimes) where the building is due to be demolished
Note however that even if an EPC is not required you can obtain one voluntarily. In which case you will not be required to comply with the minimum standard rules.
So far as listed buildings are concerned, these may not necessarily be exempt – it really depends on whether compliance with minimum energy performance requirements would unacceptably alter its character or appearance.
Examples of energy performance measures which may alter character or appearance (or as a minimum are likely to require local authority planning permission to install on a listed building) include
- solid wall insulation,
- replacement glazing,
- solar panels, or
- an external wall mounted air source heat pump.
Where character or appearance would not be altered by compliance with energy performance requirements, an EPC may be legally required.
It is vitally important that all landlords know whether or not their property is one which requires an EPC or not – and if it is, that you obtain one and ensure that you comply with the standards – or register that you are exempt (see more on this below).
If there is any doubt about whether your property (or the building it is in) is legally required to have an EPC (or whether an EPC was legally required or voluntary), or about any of the other matters discussed in this article, advice should be sought from your local trading standards office.
Note also that the methodologies underpinning the EPC calculations change from time to time – so you may get a different result when you get a new EPC even if the building has not changed.
You can search for an accredited assessor to do your EPC assessment and provide your certificate here.
The minimum standards
From 1 April 2018 landlords must not create any new tenancies of domestic property to tenants which has an EPC rating below E or renew / extend existing tenancies.
From 1 April 2020, the minimum standard will also apply to existing tenancies – so you will not be able to continue to rent to a property where the EPC rating is below E.
However not:
- If the landlord has made all the relevant energy efficiency improvements that can be made but this has not been enough to bring the property up to standard (or if there are none that can be made) AND this has been registered on the national PRS Exemptions Register, OR
- If a valid exemption applies
In these circumstances, the property can be legally let.
Subletting
Note that if the tenant wants to sublet (e.g. in a rent to rent situation) then the tenant / sublet landlord will be responsible for complying with the EPC requirements and will need to obtain permission from the landlord to do the necessary improvement works – unless an exemption applies.
Improvements, funding and exemptions
For detailed guidance on this please can you refer to the Government Guidance document (chapters 2 and 3). However, here is a brief summary.
The first thing to say is that a landlord will only be required to upgrade a property
- If funding is available to cover the full cost, or
- If the total cost to the landlord is not more than £3,500 inclusive of VAT.
These are the sources of funding set out in the guidance:
- A Green Deal Plan (see paragraphs 41 – 45 in chapter 2 of the guidance).
- Energy Company Obligation or similar scheme designed according to section 33BC or 33BD of the Gas Act 1986 or section 41A or 41B of the Electricity Act 1989 (see paragraphs 46 – 48 in chapter 2 of the guidance)
- Funding provided by central government or local authority or third party at no cost to the landlord (see paragraphs 49 – 50 in the guidance)
- A combination of any of the above funding.
If the above funding is not enough to cover the full cost, then the landlord will be expected to contribute up to £3,500 inclusive of VAT.
Note that it is up to you what energy efficiency improvements you make. You do not HAVE to do the changes suggested in your EPC so long as the changes you make do actually bring the EPC rating to E or above.
You can find out more about the Green Deal here.
Exemptions
In certain circumstances, you will be exempt, eg
- If all energy improvements have been made or there are none that can be made but the property is still sub-standard
- If the recommended improvements cannot be done because the landlord cannot obtain finance to cover the cost and the landlord’s contribution of £3,500 (inclusive of VAT) is insufficient
- One of the recommended improvements is wall insulation but this is not suitable for your property (you will need an experts report to prove this)
- If the works require a third party consent (e.g. from your freeholder or from the tenant who may not allow you to enter to do the works) which consent has not been provided. Note though that you will need to be able to show that you have made reasonable efforts to obtain the consent
- If the recommended works would devalue the property by more than 5% (again you will need an expert’s report to confirm this), or
- You have a temporary exemption because you have only just become a landlord and it is not reasonably possible for you to do the works immediately
The National PRS Exemptions Register
You will find information about this and how to add your property to the register on this page.
If your property is covered by the regulations but you qualify for a valid exemption you will need to register this, along with supporting documentation.
Registration will generally give an exemption for five years unless
- It is an exemption based on lack of third party consent which lasts for 5 years or until consent is granted – whichever is the sooner, or unless
- It is an exemption on recently becoming a landlord when it will last for six months.
You will need to set up a unique account when registering – no doubt further information will become available nearer the time.
The register will be used by Local Authority Enforcement Officers as part of their work. Limited public access will also be available.
Enforcement
The enforcement authority for these regulations is your Local Authority. It is up to the Local Authority concerned whether this work is done via Trading Standards or by Environmental Health Officers or some other department.
After 1 April 2018 Officers will be checking:
- To make sure that substandard properties are not being let in breach of the regulations and
- To ensure that information provided to the PRS Exemptions Register is correct and not false or misleading, and
- That landlords have not failed to comply with a compliance notice.
Compliance Notices
These will be served by Local Authority Enforcement Officers when they believe that someone is letting or subletting a sub-standard property. The notice will request information from the landlord to help decide whether the landlord is in breach or not.
The notice can be served up to 12 months after the suspected breach so it is possible that the landlord may have sold on the property. So if you do sell a property – make sure you hang on to your proof that you have complied with the regulations.
Compliance notices must be in writing and can be served as a hard copy or electronically.
The notice will generally request information and documentation.
If you fail to provide this, it can result in a penalty notice being served on you for of up to £2,000. There are other penalties that can be served too up to a total of £5,000 per property and per tenancy (ie if you fail to comply and then re-let the property to another tenant, you can be fined up to another £5,000).
Appeals will lie to the First-tier Tribunal.
For more detailed information about compliance notices and the penalties that can be levied please see the Government Guidance Document chapter 5.
Conclusion
Although these regulations are not as onerous as was originally supposed, they are important and landlords need to make sure that they are compliant. So you need to proceed as follows:
- Check whether your tenancy is a qualifying one. In most cases, it will be
- Check whether your property requires an EPC – in most cases it will
- If your property falls within the EPC band E or above – you do not need to worry
- If it falls in bands F or G – then you will need to investigate
- What improvement works you can do,
- whether funding is available or
- Whether the property is exempt for some reason
- You should then either try to get the work done before 1 April 2018 (if the property will be re-let or renewed after that date), or before 1 April 2020 (for all other properties), or
- If your property is eligible for an exemption, make sure that this, together with supporting documentation, is registered with the National PRS Exemptions Register in good time.
For further details and for technical information about the sort of improvements you can make to bring your property within the correct EPC band please see the government guidance.
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