On 1 April 2019, The Energy Efficiency (Private Rented Property)(England and Wales)(Amendment) Regulations 2019 (the 2019 Amendment Regulations) come into force.
In addition to removing the 'no cost' exemption for landlords of domestic properties, the 2019 Amendment Regulations clarify the position in relation to the consent exemption for lettings of both domestic and non-domestic properties.
What is the position until 1 April 2019?
Up to 1 April 2019, 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 only come 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.
What changes on 1 April 2019?
The 2019 Amendment Regulations introduce a 'cost cap' of £3,500.
From 1 April 2019, where improvements cannot be wholly financed by third party funding, a landlord will only be able to lawfully let a domestic property with an EPC rating of below E (known as a sub-standard property) if it has spent up to £3,500 on carrying out improvement works.
Is the cost of energy efficiency improvement works carried out before April 2019 taken into account?
The 2019 Amendment Regulations provide that the following will be deducted from the £3,500 cost cap:
- The total sum (including value added tax) spent by the landlord on unregistered energy efficiency improvements made between 1 October 2017 and 31 March 2019; and
- The total cost (including value added tax) of unregistered energy efficiency improvements made to the property on or after 1 April 2019
Improvement works will be 'unregistered' if they are not identified on the PRS Exemptions Register.
What about landlords who have already registered an exemption?
Any landlords who are currently relying on a 'no cost' exemption, and have registered this on the PRS Exemptions Register will not immediately lose the benefit of this. However, any such exemptions will come to an end on 31 March 2020.
How is the consent exemption being amended?
Prior to the 2019 Amendment Regulations, the MEES Regulations provide that, where a tenant's refusal of consent prevented the landlord from carrying out energy efficiency works, the exemption (if registered) lasted for five years. However, the accompanying government guidance stated that the exemption would expire earlier if that tenancy came to an end before the end of the five year period. Whilst this had been discussed in the run up to the publication of the MEES Regulations, the provision did not seem to make it into the MEES Regulations themselves.
This point has now been clarified by the 2019 Amendment Regulations – the landlord can no longer rely on the exemption once that tenancy has come to an end.
Landlords need to know their obligations under the MEES Regulations. Breach of the Regulations can lead to hefty and fines and reputational damage.