The Department of Energy & Climate Change (DECC) has issued its consultation response on the introduction of Minimum Energy Performance Standards (MEES) in the domestic and non-domestic private rented sector (PRS). The accompanying draft regulations, the Energy Efficiency (Domestic Private Rented Property) Order 2015 and the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (MEES Regulations) have also been laid before Parliament. These aim to improve the energy efficiency of privately rented property in England and Wales and are expected to be passed before the General Election.
The effect of the MEES Regulations is far reaching and those operating in the PRS need to get up to speed. In relation to domestic PRS, there are two significant developments.
From April 2018, additional hurdles will have to be overcome in order let domestic PRS properties. From that date, where a “domestic private rented property” has an EPC rating of F or G, a landlord cannot:
- grant a new tenancy or
- renew an existing tenancy of that property unless it can demonstrate that either:
- an exemption applies or
- it has undertaken “relevant energy efficiency improvements”.
From 1 April 2020, a landlord may not continue to let out such properties unless either (a) or (b) above applies.
The definitions of “domestic private rented property” and “relevant energy efficiency improvements” are complex. In essence, the way the legislation has been drafted means that there are some circumstances where landlords can continue to let F and G rated properties (which the MEES Regulations call “sub-standard”).
Lettings can go ahead where the MEES Regulations do not apply. For example, the MEES Regulations do not apply to property that:
- does not require an EPC on letting (existing EPC exemptions remain unaffected)
- is let under a tenancy which is neither an assured tenancy, nor a regulated tenancy nor a specified agricultural tenancy.
In addition, even where the MEES Regulations apply, a letting can still take place where the landlord can show:
- all possible cost-effective improvements have been carried out but the EPC rating is still below an E rating. “Cost effective improvements” are those that are capable of being installed within the Green Deal’s Golden Rule
- necessary third party consents cannot be obtained for the improvement works, because such consent was denied, or was provided with unreasonable conditions
- a capital devaluation of the property of more than 5% is expected if the required improvements are carried out. This will have to be evidenced by a suitably qualified independent surveyor.
TENANT REQUESTS FOR ENERGY EFFICIENCY MEASURES
From 1 April 2016, a tenant will be able to make a request to their landlord for the landlord’s consent to the tenant making prescribed energy efficiency improvements to the property. The landlord must not unreasonably refuse consent to the improvements specified in a tenant’s request, unless exemptions set out in the MEES Regulations apply, or the landlord proposes alternative energy efficiency measures.
INITIAL REACTIONS TO THE REGULATIONS
According to the BPF, the final regulations have taken into consideration the bulk of what the industry called for. The most important of these is the omission of incremental increases in the minimum EPC level required to legally let property. However, note that Labour has stated its intention to impose a minimum C rated EPC rating by 2027.
John Alker, acting CEO of the UK Green Building Council said “This is the single most important piece of green legislation to affect our homes and buildings that has been introduced in the whole of this Parliament”.
Richard Lambert, CEO of the National Landlords Association said: “The Government has struck a delicate balance between making clear what is expected and ensuring that there is a realistic prospect of landlords being able to comply … Setting the standard at a sensible rather than aspirational level, allowing time to achieve it and granting exemptions if the necessary improvements cannot be funded through the Green Deal or other government subsidies means that these new regulations will not impose an unreasonable burden.”
Commenting on the MEES Regulations, Penningtons Manches partner, Martin Codd, who heads the firm’s property entrepreneurs group, said: “We are pleased that the MEES Regulations have finally been laid before Parliament. Landlords can now start the process of preparing for the new legislation. The PRS has the highest proportion (11%) of homes falling within the “sub-substandard” category so the impact of the new legislation should not be underestimated.
"The Government hopes that, by announcing these measures now, two years ahead of implementation, landlords holding below E rated properties will have sufficient time to make the necessary improvements. While this may be true for large property companies and institutions that have the resources to do so, smaller landlords who typically only hold two or three properties may be adversely affected by these proposals.
“It is these investors who need to take specialist advice now to ensure that they will be in a position by 2018 to comply or to take advantage of one of the available exemptions, for example that any necessary works cannot be funded through the Golden Rule under the Green Deal."