Landlords warned they could face fines of £150k for poor EPC rating
In less than two years from now, landlords could face fines of up to £150,000, if their rented property has an energy rating which falls below the required minimum standard.
The Minimum Energy Efficiency Standards, or MEES regime, was set out by the government in March 2016 and seeks to improve the efficiency of both domestic and non-domestic buildings. The new regulations will be brought into effect from 1 April 2018 for all new lettings of commercial and residential properties in England and Wales. Under these regulations, it will be unlawful for landlords to grant a new lease of properties which have an Energy Performance Certificate (EPC) rating below ‘E’.
From 1 April 2023 onwards, MEES will then apply to all lettings, both new and existing, and a landlord will be in breach of these regulations if they continue to let a property which falls below the minimum energy rating criteria. Poor energy performance is not restricted to old or obsolete buildings (subject to specific exceptions and exemptions), meaning the regulations raise significant issues for landlords.
As such, careful planning and preparation will be required to mitigate the potential impact, so that landlords should take action now if they wish to avoid legal headaches in the near future.
The terms of any leases, both new and existing, need to be reviewed to ensure landlords have the necessary tools to deal with MEES, as and when the regulations come into effect.
Landlords will need to consider:
1. Who is going to pay for any necessary energy efficient works?
2. What access to provisions are there in your lease, both to inspect the property for MEES purposes and to carry out any necessary MEES works?
3. How will MEES impact upon rent reviews, service charges and dilapidations claims?
4. What obligations are contained within your leases to prevent your tenants from obtaining an EPC certificate, which will result in triggering MEES, or alternatively, carrying out alterations which negatively impact on the EPC rating of a property?
In cases where properties have an EPC rating less than ‘E’, landlords will need to put an energy efficiency plan in place to bring the property up to the required standard. Failure to do so will result in civil penalties, and could incur that fine of up to £150,000, unless one of the exceptions or exemption criteria applies.
Exceptions and exemptions:
Various exceptions and exemptions apply to the new regulations which landlords will need to consider. Broadly speaking, properties with short leases of less than six months, or those with long leases of 99 years or more will be exempt, as will listed buildings and temporary or religious properties.
More specifically, there are three exemption criteria which allow landlords to let, or continue to let, properties which do not meet the relevant EPC rating:
Where a landlord can demonstrate they have carried out all of the recommended improvements to the property and if these are not cost-effective within a seven-year payback.
Third party consent
Where a landlord is unable to obtain the necessary consent of a third party to carry out the required energy efficiency improvements.
Where compliance with MEES would devalue a landlord’s property by five per cent or more.
Strict rules apply to anyone seeking to claim the benefit of these exemptions and landlords will likely need to seek input from a specialist surveyor and solicitor to confirm whether they can claim. Any exemption that is sought will last for five years and must be recorded on a central periodically reviewed register.