Important news for landlords
From 1 April 2018 it will become unlawful to let properties in England and Wales that fall below a new ‘Minimum Energy Efficiency Standard’ (MEES).
The Energy Act (2011) included provisions to help to reduce the carbon footprint in the United Kingdom. This included several measures to improve the energy efficiency of properties. New build properties have been subject to increased energy efficiency standards for a number of years. It's now time for similar rules to be introduced on older properties.
After a number of years of consultation, the new ‘Minimum Energy Efficiency Standard’ (MEES), has now been confirmed by the Department of Energy and Climate Change (DECC). From 1 April 2018, properties will need to achieve a minimum of an ‘E’ rating on their energy performance certificate (EPC).
2018 - New leases and renewals
From 1st April 2018 it will be unlawful to grant a new lease or renew an existing lease if a property’s EPC rating falls below ‘E’. This applies to both domestic and commercial lets. This means that you won't be to lawfully rent out a property that falls below an ‘E’ rating, subject to certain specific exemptions. Whilst property owners are most at risk, property occupiers who sub-let any part of their premises are also affected.
2018 - New leases and renewals
Over the coming years MEES will become compulsory on all leases and will first apply to domestic properties on 1st April 2020, and then for commercial properties from 1st April 2023. From both of these dates, leases will automatically become unlawful if the properties do not meet MEES. It's imperative for property owners and property occupiers (who sub-let any part of their premises) to begin assessing how the regulations will impact them and start to plan their response.
So what are the exemptions?
Buildings that are:
- Listed or officially protected, and energy efficiency improvements would unacceptably alter them;
- An industrial site, workshop or non-residential agricultural building that uses little energy;
- A temporary structure due to be used for two years or less;
- Long-term vacant, or due to be demolished
EPC exemptions can be complex and subject to certain discretions from local authorities, therefore you should seek advice from a specialist energy performance consultant or your local authority to determine how your property portfolio will be affected by MEES.
Landlords claiming an exemption will then need to notify and evidence this to a centralised register.
Penalties for non-compliance will reflect both the severity and length of infringement.
For example, renting out a non-compliant property for three months or more attracts a penalty of 20% of the property’s rateable value, with a minimum penalty of £10,000 and maximum of £150,000.
What is the wider impact of not complying?
On top of the financial penalties, you could also suffer from a decrease in value and loss of rental income.
With between 25% to a third of all properties currently receiving an ‘E’ rating or below, a lot of property owners will be effected.
So what should you do?
A date for your diary is 1st April 2018 as the cut-off date for compliance, but you need to act know by:
- Taking a strategic approach in response to the upcoming energy rules;
- Finding out which properties are without an EPC and then assess whether one will be required (giving reference to the EPC regulations, exemptions, impending MEES dates and your lease renewal cycles). You'll then need to instruct a specialist energy performance consult to undertake an EPC;
- Identify which of your properties are at-risk e.g. those with an EPC rating of below ‘E’ and then consider employing a specialist energy performance consultant to double-check that ratings are accurate before undertaking any improvements to these properties.
- Consult specialists on how to retrofit at-risk properties and achieve minimum energy efficiency standards - be aware that that certain exemptions do apply if improvements are not cost effective;
- Evaluate your greatest income streams, renewal cycles and planned maintenance regimes to prioritise investment and action;
- Update leases and operational procedures to take account of the new regulations and ensure on-going compliance;
- Review your portfolio’s sums insured to avoid underinsurance. In light of the regulations, buildings will need to be reinstated to comply with these minimum energy standards, potentially increasing your properties’ reinstatement values.
Landlords, property occupiers (who sub-let any part of their premises), property managers and their advisors need to act now to safeguard their properties.
RICHARD J. CLIFFE - Sales & Marketing Manager
☏ 020 8619 5004