The Energy Act 2011 required the introduction of measures to improve the energy efficiency of both domestic (residential) and non-domestic (commercial) private rented buildings in England and Wales.
The Minimum Energy Efficiency Standards (MEES) are implemented in England and Wales by the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (“Regulations”). Parts 1 and 2 of the Regulations came into force on 1 April 2016 and Part 3 comes into force on 1 October 2016.
The two key measures introduced by the Regulations are:
- If a property is sub-standard because its energy performance falls below the minimum level of energy efficiency of a band E EPC (that is band F or G), a landlord may not:
- Grant a new tenancy, extend or renew an existing tenancy of a domestic or non-domestic private rented property on or after 1 April 2018;
- Continue to let a domestic private rented property on or after 1 April 2020; or
- Continue to let a non-domestic private rented property on or after 1 April 2023.
Note that there is always the possibility that overall standards may become tighter in the future and the band E threshold could be raised.
- A tenant of a domestic private rented property is able to request the landlord’s consent to make energy efficiency improvements to the property despite any restrictions that may be contained in its lease. Such consent is not to be unreasonably withheld, subject to certain exemptions.
The Regulations do not impose a positive obligation on landlords to carry out energy efficiency improvement works. However, a landlord who wishes to let a sub-standard property (whether domestic or nondomestic) must undertake “relevant energy efficiency improvements” or obtain and register an exemption. Many investors’ strategies look set to be founded on claiming and renewing exemptions.
The Regulations do give the landlord some flexibility and if the landlord pays for the works itself, it can try to recover the cost of doing those works by charging the tenant a higher rent or service charge (assuming the lease wording permits this). This will depend on the state of the relevant property market and whether it is the landlord that has the bargaining strength.
Once the landlord has undertaken the relevant energy efficiency improvements for a sub-standard property, or if there are no relevant energy efficiency improvements that can be made, the property is treated as being compliant for a period of five years from the registering of their completion.
Is the lease valid if a sub-standard property is let?
The validity or enforceability of a lease is not affected by a landlord letting, or continuing to let, a domestic or nondomestic property in breach of the MEES requirement. Neither can a landlord terminate the tenancy or require the tenant to vacate because the landlord has failed to achieve the MEES requirement. However, the landlord will be in breach and liable to enforcement action.
The Regulations do provide for some key 5 year exemptions (none of which last indefinitely) which are likely to form part of the overall strategy for investors:
- improvement works have been done – If all costeffective energy improvement works have been done but the EPC remains below E rating – the works will be cost effective if the cost of carrying out the works is less than what the predicted energy savings will be over 7 years.
- consent exemption – If a landlord has been unable to obtain the necessary consents for energy improvement works (such as planning permission or any consents required under the lease).
- devaluation exemption – If the landlord has obtained a report from an independent surveyor which states that making the relevant improvements would devalue the property (or the building of which it forms part) by more than 5 per cent of the market value.
There are also some “mini-exemptions” which postpone the prohibition on letting for six months where a landlord has no choice as to whether or not to grant a lease, for example:
- where a landlord is contractually obliged to grant a lease (such as under a preceding agreement for lease);
- where a lease is granted by operation of law (such as where there is a deemed surrender and re-grant);
- where an overriding lease is granted under sections 19 and 20 of the Landlord and Tenant Act 1995; or
- where a renewal lease is granted under part II of the Landlord and Tenant Act 1954.
In addition, there is also a six month “mini-exemption” from the obligation not to continue to let substandard property where a party becomes a landlord by purchasing a property subject to a pre-existing tenancy. This applies to existing lettings of residential property from 1 April 2020 and to other property from 1 April 2023. The successor landlord will either need to bring the property up to standard within six months or establish a new exemption.
Landlords may only rely on the above exemptions where they have registered the information concerning the exemption in the private rented sector exemptions register, which is open to public inspection, in accordance with the Regulations.
Tenant’s request for landlord’s consent
A tenant’s notice requesting consent to make relevant energy efficiency improvements must contain certain information, to include:
- the relevant energy efficiency improvements for which the landlord’s consent is sought;
- a copy of any recommendation report;
- evidence that funding is free of charge under an energy suppliers’ obligation, or written confirmation where the tenant is funding;
- specify what works, if any, the tenant will undertake to make good the property after the relevant energy efficiency improvements are made, as well as confirming that any such works will be carried out at the tenant’s expense.
From 1 April 2018 an enforcement authority can serve either a financial penalty, publication penalty, or both, on a landlord if at any time in the preceding 18 months, the landlord has been letting a sub-standard domestic or non-domestic property in breach of the Regulations.
Click here to view table.
An enforcement authority will publish information in relation to a penalty notice on the private rented sector exemptions register for at least 12 months. The landlord can appeal on the grounds that the issue of the penalty notice is based on an error of fact or law; does not comply with the requirements in the Regulations; or should not have been served in the circumstances of the case. The penalty notice will be suspended pending the outcome of the appeal.
On 14 April 2016 the draft Energy Efficiency (Private Rented Property) (England and Wales) (Amendment) Regulations 2016 were introduced into Parliament to amend the Regulations. If approved, the 2016 Regulations will delay the dates from which landlords may register an exemption from minimum energy efficiency requirements to 1 April 2017 for non-domestic properties and 1 October 2017 for domestic properties.
As the EPC rules are EU-driven, it will be interesting to see whether there is any impact now that the UK has voted to leave the EU.