Changes to energy efficiency rules
What do the rules mean for landlords?
Since 1st October 2008, all domestic and commercial buildings in the UK have, by law, required an Energy Performance Certificate (EPC).
An EPC shows the energy-efficiency of a building and gives a rating between A: Very Efficient and G: inefficient. An EPC helps landlords and their tenants to understand how much a building will cost to heat and what its carbon footprint could be.
Valid for 10 years, an EPC also shows what energy-efficiency rating could be achieved if recommended improvements were made.
From 1st April 2018, changes to the regulations were introduced. These changes meant that private landlords letting a property to a new tenant (assuming it legally required an EPC) had to ensure that it achieved a minimum rating of ‘E’.
These changes covered all of the following types of domestic tenancies:
- Assured tenancy
- Regulated tenancy
- Domestic agricultural tenancy
New rules coming into force in April 2020
As of 1st April 2020, all domestic lettings, including existing tenancy agreements, must achieve an ‘E’ rating or higher. The new energy efficiency rules apply to all landlords of rental properties in England and Wales.
The new regulations, amended on 15th March 2019, detail Minimum Energy Efficiency Standards (MEES) for letting domestic property.
Any property that requires an EPC and fails to meet the new minimum energy rating standards may not be rented to tenants after the April 1st deadline. However, there are certain circumstances where an exemption may be sought.
The Statutory Instrument introducing the new rules was made with little or no fanfare. Because of this, many landlords are unaware of the new rules and how they will be affected them.
To help, we’ve compiled some answers to the sort of questions that many landlords are bound to have.
Minimum Energy Efficiency Standards (MEES) –
Frequently Asked Questions
From April 1st 2020, all landlords in England and Wales, renting out properties that require an EPC, will need to achieve a rating of ‘E’ or above. Any property with a rating of F or G may not be rented; this also includes existing tenancies.
If your privately rented home requires an EPC and you are letting on an assured, regulated or domestic agricultural tenancy, the new rules apply to you.
There is a cost cap that means you’re not legally obliged to spend more than £3,500 (including VAT) on energy efficiency improvements.
If you can’t improve your property to an EPC rating of ‘E’ for £3,500 or less, you should make improvements up to that amount, then register an ‘All Improvements Made’ exemption (see notes on exemption below).
If you let a non-compliant property for up to three months, you are liable to a fine of up to £5,000, or 10% of the rateable value (up to £50,000).
If you let a non-compliant property for more than three months, you are liable to a fine of up to £10,000, or 20% of the rateable value (up to £150,000).
A fine of up to £5,000 may also be issued for providing false information, or failing to fulfil a compliance order.
Landlords may be exempt if any of the following special circumstances apply:
– ‘High cost’ Exemption – Applies where the cost of making even the cheapest recommended improvement would exceed £3,500 (including VAT).
– ‘7 Year Payback’ Exemption – Applies where a recommended measure is not a “relevant energy efficiency improvement” because the cost doesn’t meet the 7 Year Payback test.
– ‘All Improvements Made’ Exemption – Applies where all the “relevant energy efficiency improvements” have been made (or there are none that can be made) and the property remains below the ‘E’ rating.
– ‘Wall Insulation’ Exemption – Applies where cavity, external or internal wall insulation recommendations are deemed unsuitable.
– ‘Consent’ Exemption – Applies where a third party fails to consent to energy efficiency improvements. Third parties include freehold owners, mortgage lenders and tenants.
– ‘Devaluation’ Exemption – Applies where the landlord has obtained a report from an independent surveyor, advising that energy efficiency measures would reduce the property’s value by more than 5%.
– ‘New Landlord’ Exemption (temporary, 6-month exemption) – Applies to domestic and non-domestic properties where someone has suddenly or unexpectedly become a landlord for one of various reasons.
There are 3 ways to fund energy-efficiency improvements:
1) Third party funding
If you are able to secure third party funding, you should make use of all of it, to bring your property to a rating of ‘E’ or above.
Funding can include:
Energy Company Obligation (ECO)
Local authority grants
Green Deal finance.
2) Combination of third party and self-funding
If you are able to secure third party funding of less than £3,500, and it doesn’t cover raising your property to an ‘E’ rating, you may need to add your own funds.
Please note, any energy efficiency investment made to your property since 1st October 2017, will count towards the cost cap of £3,500.
If you are unable to secure any funding, you will have to pay for improvements to your property out of your own funds.
Please note, you are not required to spend the full £3,500 if you are able to bring your property up to a rating of ‘E’ for less.
To secure an exemption, landlords must sign up to the PRS Exemptions Register.
If you have any more questions, please call our property management team on 020 7368 4414
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