The Energy Efficiency (Private Rented Property) (England and Wales) Regulations have now received approval from both Houses of Parliament and will ensure that buildings rented for commercial use in the private sector meet minimum energy efficiency standards.
The most significant change brought about by the Regulations can be found in Part 3, which will come into force from 1 October 2016, and prescribes a minimum level of energy efficiency that must be met in order for a landlord to rent out a building.
This new energy efficiency requirement is closely linked to the Energy Performance Certificate (EPC) regime, which requires that the energy efficiency of a building is rated, allowing tenants to make informed energy performance decisions when choosing a building to rent. This rating is expressed on a scale from ‘A’ to ‘G’, with ‘A’ indicating that the building is very energy efficient and 'G' being the lowest rating.
Previously there were no direct legal requirements on landlords to ensure that buildings rented in the private sector for commercial use met any minimum energy efficiency requirements. However, under Part 3 of the Regulations, a landlord will now no longer be able to rent out a building which has an EPC energy efficiency rating lower than an E, unless certain exemptions apply. This will have a significant impact, as it is estimated that F and G rated properties currently make up 18 per cent of building stock.
The main exemption to this provision is that these improvements only need to be carried out if it can be shown that within seven years they are predicted to deliver energy bill savings of at least the total cost of the improvements plus interest at the Bank of England Base Rate at the time of the installation. Additionally, leases of a fixed length under six months with no provisions for renewal are excluded, as well as leases of 99 years or longer.
Although the Regulations come into force from 1 October 2016, leases will not be caught by their provisions from this date. Instead, for the purposes of non-domestic leases, the Regulations will apply from 1 April 2018 to the grant of a new lease, lease extensions and renewals, and on or after 1 April 2023 to all leases including existing leases.
Parts 1 and 2 of the Regulations will come into force from 1 April 2016, and concern the ability of a tenant to make a request for their landlord's consent to make relevant energy efficiency improvements.
Under the Regulations, a tenant can make a request to their landlord for permission to make an improvement to the energy efficiency of their building, to which the landlord may not unreasonably refuse to give consent unless an exemption applies. A landlord may refuse to give consent for example to certain types of improvement where it is shown that they may have a potential negative impact on the fabric or structure of the property.