Are you energy efficient?
While admittedly the energy efficiency of properties can appear a rather dry topic there have been recent changes which affect both residential and commercial landlords.
An Energy Performance Certificate (EPC) will show a property’s energy efficiency by applying a banding (A – G) and numbering (100 – 1) system. A and 100 being the most efficient with G and 1 being the least. An EPC will also indicate how this rating can be improved if energy efficiency improvements are undertaken.
EPCs apply to both residential and commercial property and are required when the property is sold or let.
Some buildings do not require an EPC to be provided when sold or let, for example listed buildings. Indeed, some transactions do not require an EPC, such as new leases under the 1954 or 1993 Acts, corporate wrapper sales, property gifts or the appointment of a new trustee.
Minimum Energy Efficiency Standard Regulations
The new legislation prohibits lettings where the property has an EPC rating of F or G and allows tenants of domestic and non-domestic units to request that energy efficiency improvements are carried out to the property. The key dates for landlords are:
• 1 April 2016: tenants of domestic privately rented properties can ask their landlord to carry out energy efficiency improvements to the property. A landlord cannot unreasonably withhold consent to these works, nor is the landlord obliged to finance these works.
• 1 April 2018: a landlord cannot grant a new tenancy or renew an existing tenancy of a privately rented property which has an EPC rating of F or G.
• 1 April 2020: a landlord cannot continue to let a domestic privately rented property if it has an EPC rating of F or G.
• 1 April 2023: a landlord cannot continue to let a non-domestic privately rented property if it has an EPC rating of F or G.
The legislation affects both domestic and non-domestic privately rented property. Domestic property includes properties let under an assured shorthold tenancy or another statutory tenancy.
The legislation does not apply to caretaker’s accommodation or long residential leases. Non domestic privately rented property is property which is not a residential unit.
Not to unreasonably withhold consent to energy efficiency improvements to domestic privately rented properties
From 1 April 2016, landlords of domestic privately rented properties must not unreasonably withhold consent to a tenant’s request to install energy efficiency improvements which would be installed at no cost to the landlord.
These improvements include double glazing, cavity wall insulation or connecting the property to a mains gas supply where it was not before. Tenants can fund these works from several sources including the government, the local authority or privately.
To proceed with the improvements the tenant must serve a tenant’s request notice on the landlord which must be in a specified form and include details of the works, the installer and the funding source. A tenant cannot serve a request if possession proceedings are ongoing or there are 3 months or less before the expiry of the tenancy and the tenants intend to vacate, the tenant requested energy efficiency improvements in the preceding 6 months and an exemption applied or the tenant has made energy efficiency improvements in the preceding 6 months.
Following service of a tenant’s request notice the landlord must respond by serving an initial response and counter notice in a set timescale, prescribed in the legislation.
Exemptions apply where reasonable steps have been taken to obtain third party consent (if so required) and that consent has not been given, or where an independent surveyor states that the works would adversely affect the property’s value by 5% or more.
A landlord will not have unreasonably withheld consent where it has complied with a tenant’s request in the previous 6 months, the landlord has refused consent to the same improvements in the preceding 6 months, or where an independent surveyor, architect or contractor advises that the improvements are inappropriate due to their negative impact on the fabric or structure of the property, for example a listed building.
A tenant may apply to the Tribunal where a landlord does not reply in the prescribed time limits or where a tenant believes that the landlord has unreasonably withheld consent. The Tribunal may order the improvements if it considers that the landlord is in breach.
Prohibition on rental of sub-standard domestic and non-domestic privately rented properties by landlords
From 1 April 2018 a landlord cannot let properties which have an F or G EPC rating. From 1 April 2020 a landlord cannot continue to let a domestic privately rented property if it has a substandard EPC rating and from 1 April 2023 a landlord cannot continue to let a non-domestic privately rented property if it has the same EPC rating.
Properties which do not require an EPC on sale or letting will be exempt.
A landlord will be exempt where it has made reasonable efforts to obtain consent to the improvements and a tenant or third party has refused or an independent surveyor states that the works would decrease the property’s value by at least 5%. There is also a temporary exemption where the landlord has become the landlord due to a tenant’s insolvency or by a Court Order.
The exemption must be registered on the PRS Exemptions Register maintained by the Local Authority.
From 1 April 2018 the local authority may serve a compliance notice on a landlord where it appears that the landlord is, or has been in the previous 12 months, letting a property with an F or G EPC rating. From 1 April 2018 the local authority may serve a penalty notice where it is satisfied that the landlord is, or has been in the preceding 18 months, letting a property with an F or G EPC rating or where the landlord has failed to comply with a compliance notice. There is no requirement to serve a compliance notice before a penalty notice. The penalty notice may impose a financial penalty, a publication penalty or both.
The maximum penalty for a residential landlord is £5,000 and £150,000 for a commercial landlord.
A publication penalty means inclusion on the PRS Exemptions Register and publication of the landlord’s name (provided he is not an individual), property address, the breach and the financial penalty. A penalty notice can be appealed.
We wait to see whether tenants will request that landlords carry out energy efficiency improvements and whether this will have the desired effect on utility bills and the quality of properties available to rent. What is certain is that even greater obligations are imposed on landlords. No doubt the market will adjust to reflect these additional burdens.