On 5 November 2018, the government released it response to the consultation on proposals to amend The Energy Efficiency (Private Rented Property)(England and Wales) Regulations 2015 (widely known as the MEES Regulations).
What is the effect of the consultation response?
The consultation had proposed that landlords of domestic properties would be required to spend up to £2,500 per property on trying to bring it up an E rating. However, the government has now revealed that landlords will, in fact, have to spend up to £3,500 per property on energy improvement works. Only if, after spending up to this sum, the property still fails to achieve an E rating, will the landlord be able to register an exemption on the PRS Exemptions Register.
When will landlords have to start spending money on energy efficiency improvements?
Currently landlords of domestic properties do not have to spend anything on energy efficiency improvements. The MEES Regulations are drafted to enable the landlord of a sub-standard domestic property to lawfully let that property if all relevant energy efficiency improvements have been undertaken, or if there are none that could be made. Works will only fit within the definition of relevant energy efficiency improvement if they can be wholly financed at no cost to the landlord. This exemption is commonly referred to as the 'no cost' exemption.
This is what will change. The regulations will be amended to redefine a 'relevant energy efficiency improvement' as one which has been recommended for a property and which can be purchased and installed (either on its own, or in combination with other improvements) for £3,500 or less.
The government intends the amending regulations to come into force in 2019. From enactment, the amended regulations will apply on the grant of a new tenancy to a new tenant and a new tenancy to an existing tenancy.
From 1 April 2020, the amended regulations will apply to existing tenancies as, from that date, it will be unlawful to continue to let a sub-standard domestic property (provided that there is a valid EPC in place on that date) unless an exemption has been registered.
What if a landlord has spent money on energy efficiency improvements before April 2019? Will this be taken into account?
The costs of energy efficiency improvements that were incurred on or after 1 October 2017 can be taken into account.
What about landlords who have already registered an exemption?
Approximately 1,800 domestic landlords have already registered a 'no cost' exemption. The current MEES Regulations provide that this exemption lasts for five years. However, the government has stated that any such exemptions will end on 1 April 2020.
This means that any domestic landlords who had expected to be able to rely on the 'no cost' exemption for the next five years will need to take action. The consultation response states that individual landlords will be contacted via the Exemptions Register to give them sufficient time to take action. The PRS Exemptions Register will also be updated so that all 'no cost' exemptions are automatically cancelled on 31 March 2020.
What about tenant consent to a Green Deal plan?
The government has decided to remove the exemption currently available under regulation 31(1)(a)(ii), which enables the landlord to register an exemption if the tenant will not give its consent to a Green Deal plan. Given the limited take-up of the Green Deal, this amendment is unlikely to have a significant impact. We are still awaiting the release of the consultation on proposals for the reform of the Green Deal Framework, promised in July 2018.
The government intend the amending regulations to come into force in 2019. We will continue to monitor and report on developments.