Housing providers have faced huge challenges to invest in energy efficiency in recent years.  Most recently, the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 imposes new standards affecting owners of privately rented property from 1 April 2018.  The Regulations aim to ensure that the energy performance of all privately rented buildings is improved to at least an "E" Energy Performance Certificate (EPC) rating.

Application to residential properties

The Regulations apply to the domestic private rented sector in England and Wales.  This is defined as properties let under an assured tenancy for the purposes of the Housing Act 1988 or a tenancy which is a regulated tenancy for the purposes of the Rent Act 1977 and the government is able to add additional tenancy types.  Similar provisions also apply to commercial properties.

From 1 April 2018, landlords will be unable to grant or renew tenancies of residential privately rented properties which fall below the EPC rating of "E". From 1 April 2020, landlords are also prohibited from continuing to let properties under existing tenancies if the minimum energy efficiency performances fall below the minimum standard.

Of particular significance to the residential sector is the right for tenants living in an "F" or "G" rated property to request consent from the landlord to allow the tenants to carry out specific energy efficiency measures from 1 April 2016, known as the tenant's request.  Neither the landlord nor superior landlord can refuse unreasonably to consent to relevant improvements. Landlords are not expected to bear the cost of energy efficiency improvement measures and improvements can be funded through financial arrangements such the Green Deal, or by the tenant themselves. However, there is some concern in the sector that landlords may ultimately be responsible for some of the costs of the improvements.

Exemptions and enforcement

Certain exemptions are available to landlords of domestic properties which fall below the required standard where they are able to show that:

  • Measures are not cost effective ie the value of savings of the relevant energy efficiency improvement measures would not achieve a simple payback through energy savings within 7 years;
  • All energy efficiency improvement measures that would meet the Golden Rule (a concept developed through the Government's Green Deal initiative) have been undertaken.  Under the Golden Rule, the cost repayments for improvements (including interest charges) must be the same or less than the expected energy savings throughout the expected lifetime of the improvements or a specified pay-back period; 
  • Third party consent to carry out improvements has been denied to the landlord, eg from a mortgagee, a local authority or a tenant who refuses to agree to improvements;
  • In the opinion of a qualified expert, the measures will devalue the price of the property by 5% or more.

To rely on any of the above exemptions, landlords will need to register the information on a central Private Rented Sector (PRS) Exemption Register. 

Where a local authority considers that a residential landlord may be in breach of the Regulations it may impose a fixed civil penalty.  Under the Energy Act 2011, the maximum penalty for non-compliance in respect of residential properties is £5,000.  Significantly, authorities also have the power to publish information regarding non-compliance, which may have significant reputational implications for some landlords.

On the horizon

The new standards on energy efficiency are one of a number of measures which have been introduced to improve energy efficiency as illustrated in our timeline.

Landlords should identify if they have any "F" or "G" rated properties in order to create a strategy for carrying out works to improve energy performance.  Landlords should focus particularly on leases that are coming to an end and establish a programme to bring these properties up to an "E" rating if none of the above exemptions apply. 

As part of its election campaign, the Conservative Party promised to support low-cost measures on energy efficiency, with the goal to insulate a million more homes over the next five years and ensure that every home and business is fitted with a Smart Meter by 2020.  However, at the state opening of parliament the Queen’s speech failed to mention any measures to tackle energy efficiency of buildings and this has been seen by many as a missed opportunity.  In particular, Julie Hirigoyen, Chief Executive of the UK Green Building Council, said:  “The Queen’s Speech represents a missed opportunity for Government to set out how it can reduce emissions from our built environment.” 

However, given the government’s commitment to reduce the UK’s greenhouse gas emissions by at least 80% by 2050 (from the 1990 baseline), it is likely that additional energy efficiency measures will need to be implemented in this parliament to ensure that the UK does not fall short of its domestic and international climate change obligations.