From 1 April 2018, it will be illegal to let domestic and non-domestic property in England and Wales which has an EPC rating below "E" unless an exemption applies. In the previous edition of Blueprint, we looked at this topic when the Government was still at the consultation stage but matters have moved forward since then and the Energy Efficiency (Private Rented Property) Regulations 2015 (SI 2015/962) and accompanying Energy Efficiency (Domestic Private Rented Property) Order 2015 (SI 2015/799) have now been passed by Parliament. The Regulations apply to both domestic and non-domestic private rented property and Parts 1 and 2 will take effect from 1 April 2016 and Part 3 will take effect from 1 October 2016. However, the key date from which the prohibition on letting will apply will be 1 April 2018.
So what do the Regulations say…?
Focusing on the non-domestic private rented sector, as predicted, the minimum EPC level has been set at an "E" and this will apply equally to all categories of non-domestic property.
Enforcement will be via local authorities for domestic private rentals and the local weights and measures authority for non-domestic private rentals. Penalties for non-compliance will reflect the degree of infringement and may be cumulative. Penalties may also be made public and this is a similar approach to the "naming and shaming" CRC penalties.
The Regulations only apply to lettings (not dwellings) and apply to the non-domestic private rented sector in England and Wales except for those properties specifically excluded from EPC obligations. Exclusions from this definition include any property which is let on a tenancy or granted for a term of less than 6 months (subject to certain exceptions) and any property let on a tenancy for 99 years or more.
The Regulations will apply from 1 April 2018, upon the granting of a lease to a new tenant or an existing tenant. From 1 April 2023, the Regulations will apply to all non-domestic private rentals which fall within the scope of the Regulations although note that the Regulations' application to relevant domestic private rentals is earlier and will start from 1 April 2020.
In certain circumstances such as when the landlord acquires property, landlords will be given some leeway and have six months to comply with the Regulations. Similarly, where a non-compliant property occupied by a tenant is sold, or is transferred to a lender in the case of receivership, the new landlord will have six months to improve the property, or demonstrate that it is exempt.
Only appropriate and cost effective improvements to property will be required and landlords will be eligible for an exemption from reaching the minimum standard where they can evidence that one of the following applies:
- The measures are not cost-effective, either within a seven year payback, or under the Green Deal’s Golden Rule.
- Despite reasonable efforts, the landlord cannot obtain necessary consents to install the required energy efficiency improvements, including from tenants, lenders and superior landlords.
- An independent surveyor provides written advice that the measures will reduce a property’s market value by 5% or more.
Where a landlord considers an exemption applies allowing them to let their property below an "E" EPC rating, the landlord will need to notify this on the centralised register Private Rental Sector Exemptions Register.
If you own relevant properties with an EPC rating lower than "E" consider any necessary or desirable improvements that may be undertaken and/or whether an exemption applies. Further, take care to notify exempt properties on the Private Rental Sector Exemptions Register. Finally, your existing contractual documentation and/or agreements may require amendment to reflect these provisions.