Last Summer the government consulted on proposals designed to improve the energy efficiency of privately rented property. 

What?

Having reviewed the responses the government intends to implement the regulations for non domestic properties on the following terms : 

  • Properties let on short term tenancies (less than 6 months) (provided the tenant will not have occupied the property for in excess of 12 months) will be excluded as will those let on long term tenancies (99 years or more);
  • All non domestic property is included within scope except these properties which are specifically excluded from the obligation to have an EPC;
  • As expected the minimum energy rating to be achieved is an E rated EPC;
  • Landlords will be eligible for an exemption if:
    • the measures to improve the energy efficiency rating are not cost effective either within a 7 year payback or under the Green Deal’s Golden Rule; or
    • despite reasonable endeavours the landlord cannot obtain any necessary consents to the work either from the tenant, a lender or a superior landlord; or
    • expert advice is provided that the measures will reduce the value of the property by 5% or more or that wall insulation will damage the property
  • As expected the regulations will apply on the grant of all new leases from 1 April 2018 (whether to a new tenant or an existing tenant);
  • From 1 April 2023 the regulations will apply to all properties within scope even if the property is already occupied by a tenant;
  • Where a tenancy is granted in circumstances where the landlord would not have the opportunity to prepare in advance eg where the tenancy arises by operation of law, or where a non compliant property is sold, or in a receivership situation is transferred to a lender then the new landlord will have a period of 6 months to improve the property or show that an exemption applies;
  • Enforcement will be dealt with by Local Authorities – most likely via trading standards;
  • A new requirement is that where a landlord is relying on an exemption the landlord will need to notify this to a central online register run by DECC.
  • Enforcement will be by means of compliance notices followed by penalty notices.
  • The basic offence of providing false or misleading information to the exemptions register or failing to comply with a compliance notice is subject to a penalty of £5,000.  However the offence of renting out a non compliant property is related to the length of non compliance and the value of the property.  If the non compliance is for less than 3 month the fine is 10% of rateable value subject to a minimum penalty of £5,000 and a maximum penalty of £50,000.  For a period of non compliance of 3 months or more the penalty is 20% of rateable value with a minimum of £10,000 and a maximum of £150,000. The legislation does include an appeals procedure.

Timing

  • The Regulations have already been laid in parliament;
  • The Register for lodging exemptions will become available in 2016;
  • Further government guidance is awaited;
  • The Regulations will apply from 1 April 2018 for non domestic landlords;
  • The first review of the legislation is planned for 2020.

So what?

Now is an opportune time to begin considering the EPC ratings of your property portfolio.  When buying property or taking a lease, if you have previously taken a view on whether to insist on an EPC being provided you may wish to reconsider that stance given the future significance of the issue.