As of 1 April 2018, both domestic and non-domestic rental properties over which a new tenancy is to be granted must have an EPC rating of ‘E’ or above. This requirement also applies to lease renewals and lease extensions.
If an EPC energy efficiency rating of E or above for domestic and non-domestic properties cannot be achieved, landlords should consider the exemptions under the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (“the Regulations”).
If an exemption does apply then it should be registered on the PRS Exemptions Register (“the Register”). Registration will generally last 5 years but, once expired, landlords must improve the energy efficiency of the property or register a further exemption.
- The ‘High Cost’ Exemption (for domestic property only) applies where the cost of improvements exceeds £3,500 (including VAT). Where improvements are made for less, but fail to improve the energy efficiency rating, the ‘All Improvements Made’ exemption may apply.
- The ‘7 Year Payback’ Exemption (for non-domestic property only) can be claimed where improvements have not met the 7 year payback test. This test will have failed if the savings to be achieved by energy efficiency improvements are less than the cost of repaying measures to be undertaken over 7 years.
- The ‘All Improvements Made’ Exemption (for domestic and non-domestic property) applies if all possible improvements made do not result in achieving an energy efficiency level E. The exemption must be registered on the Register before letting the property (on a new or existing tenancy) after 1 April 2020 for domestic properties and after 1 April 2023 for non-domestic properties.
- The ‘Wall Insulation’ Exemption (for domestic and non-domestic property) recognises that insulation may not always be suitable. If applicable, expert advice must be sought from an architect, charted engineer, chartered building surveyor or chartered architectural technologist.
- The ‘Consent’ Exemption (for domestic and non-domestic property) applies where third party consent is required but cannot be obtained.
- The ‘Devaluation’ Exemption (for domestic and non-domestic property) applies where an independent surveyor’s report states that installing energy efficiency measures would reduce the market value of the property by more than 5%.
- The ‘New Landlord’ Exemption (for domestic and non-domestic property) provides circumstances where new landlords will not be prevented from letting a property. New landlords have 6 months from the date upon which the interest in the property was acquired to either undertake works to improve the energy efficiency rating or, if unable to do so, register another exemption.
Doing nothing, or failing to consider the exemptions, may lead to a compliance notice being served or the imposition of penalties of up to £5,000 per property.