Subject to a few exemptions and exceptions, “F” and “G” rated properties in the private sector (residential and commercial) in England and Wales will start to become unlettable in 18 months’ time (1st April 2018). We reported previously on the details of the forthcoming prohibitions (see Law-Now) and this article is intended as a short reminder. Scotland is addressing the issue of poor performance of non-domestic properties in Scotland but is not introducing prohibitions on lettings. For details of energy efficiency obligations applicable in Scotland click here.
England and Wales
Improving the energy performance of buildings has been a legal issue for many years under both EU and UK law. The discrete legislative steps in terms of prohibiting the letting of private sector “F” and “G” rated buildings were first introduced in England and Wales by the Energy Act 2011 which imposed a duty on the Secretary of State to improve the energy efficiency of such properties. This was followed by the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (the “Regulations”) which were made on 26th March 2015 and contain minimum energy efficiency standards (MEES) for the private rented sector. The Regulations in relation to MEES come into force on the 1st October 2016. They relate to properties which are required to have an Energy Performance Certificate (“EPC”). Subject to certain exemptions and exceptions the MEES provisions will come into effect in stages to prohibit the letting of “F” and “G” rated private sector properties (i.e. the EPC rating for the property must be A to E). The implementation dates are:
From 1st April 2018: any new lease of a domestic or non-domestic building.
From 1st April 2020: in the private domestic sector, all existing leases made prior to 1st April 2018.
From 1st April 2023: in the private non-domestic sector, all existing leases made prior to 1st April 2018.
The following are excluded from the MEES provisions:
- A lease of less than six months;
- A leasehold of 99 years or more;
- Properties which are not required to hold an EPC. These include buildings used as places of worship and for religious activities; temporary buildings with a planned time of use of two years or less; industrial sites, workshops and residential agricultural buildings with low energy demand; stand-alone buildings with a total useful floor area of less than 50m2; and buildings officially protected as part of a designated environment or because of their special architectural or historic merit such as museums or listed buildings;
- Property assets which do not have side walls (such as public car parks) but which have lighting will not constitute a building for the purposes of requiring an EPC; and Owner-occupied property.
A number of exemptions are available to landlords who wish to be exempted from meeting the minimum standard.
- Cost-effectiveness: the landlord would need to demonstrate that the identified improvement measures listed in the Recommendation Report produced in parallel with a valid EPC are not cost-effective within a seven year payback. Relevant improvements that can achieve a simple payback within seven years are listed in Table 6 of the Buildings Regulations Approved Document L2B (available here). (It is to be noted that the Green Deal financing limb of this exemption no longer applies since the Green Deal was scrapped in October 2015).
- Third party consents: the landlord would need to demonstrate that despite “reasonable endeavours” the landlord cannot obtain necessary third party consents to install the required energy efficiency improvements, (including, where required, from tenants, lenders and superior landlords).
- Property devaluation: This exemption applies where a suitably qualified expert provides written advice that the measures will reduce a property’s value by 5% or more, or that wall insulation required to improve the property will damage the property.
The Exemptions Register
Landlords will only be able to rely on exemptions where they have lodged information concerning the exemption on an Exemptions Register (this Register is yet to be set up). The exemptions are valid for five years (subject to the sale/ new owner or a receivership within that timeframe). Upon expiry of an exemption, the landlord will need to either comply with MEES, or register a valid new exemption.
An exemption is required to contain the address of the property, the name of the landlord, a copy of the EPC and information that the landlord relies upon for the exemption. An exemption is personal to the landlord. It would therefore need to be renewed in the event of a change of ownership.
Non-statutory guidance yet to be published
Non-statutory guidance in relation to various aspects of workings of MEES is expected to be published by the Government in the next 18 months.
Enforcement of MEES
Local authorities are to enforce the MEES provisions and in most cases Trading Standards will undertake the enforcement activity.
Local authorities will be able to serve compliance notices on landlords where they suspect that a landlord is not compliant, or has not sufficiently proved an exemption. A compliance notice would require the landlord to provide further information which the local authority considers necessary. In particular the compliance notice may require the landlord to produce for inspection originals or copies of:
- The EPC that was valid at the time the property was let.
- Any current tenancy agreement under which the property is let.
- Any qualifying assessment in relation to the property.
If the information is not provided, or is provided and is not sufficient to prove compliance, the local authority may proceed to issue a penalty notice. The compliance notice may also require the landlord to register copies of any of these documents on the Exemptions Register.
This may be served on a landlord where the enforcing authority is satisfied that the landlord is, or has at any time in the preceding 18 months erroneously been letting a domestic or non-domestic private sector “F” or “G” rated property. Under the penalty notice, the enforcement authority may impose a financial penalty, a publication penalty or both. If the landlord fails to take the required action, the enforcement authority can issue a further penalty notice. These notices may appear on the Exemptions Register. If the landlord believes a penalty notice is incorrect, there is a right of appeal.
The length of the breach will determine the severity of the financial penalty. Where the landlord has been in breach for less than three months, the fine will be:
- £5,000 or 10 per cent of the rateable value (up to £50,000) for non-domestic property;
- £2,000 for domestic property.
Where the landlord has been in breach for three months or more, the fines will be:
- £10,000 or 20 per cent of the rateable value (up to £150,000) for non-domestic property;
- £4,000 for domestic property.
MEES have been around for quite some time. No doubt many landlords and investors have been carrying out appropriate due diligence of their portfolios in order to assess what, if any, exposure they may have and in the event of exposure determine what actions they might take. Some have also been reviewing their leases to determine how they want to address the re-letting risk in the future. There will however be others who have yet to focus on whether they are exposed to material risk.
To access the Regulations click here.