From 1 April 2018, further to the Energy Act 2011 (Act) and following two consultations, it is highly probable that it will be illegal to let domestic and non-domestic properties with an Energy Performance Certificate (EPC) rating of "F" or below unless an exemption applies. Given that government data suggests that nearly one-fifth of non-domestic properties and one tenth of domestic rental properties have an "F" or "G" rating, this is a legislative development which cannot be ignored.
Draft legislation for these measures has not yet been prepared however, two consultations (one for domestic and one for non-domestic properties) setting out how the new law might work were launched in July (closing in early September). The plan is for draft legislation to be produced by the start of 2015.
Setting minimum energy performance standards for lettings stems from the carbon reduction commitments in the Climate Change Act 2008. Under this Act, the Government has committed the UK to reducing its carbon emissions by 80% below 1990 levels by 2050. While there has been much recent controversy over the proposed scaling down of new build zero carbon commitments in the Infrastructure Bill with the introduction of "allowable solutions" and the zero carbon exemption for "small sites" the launch of these consultations show that the "greenest Government ever" still remains committed to meeting sustainability targets. In relation to low carbon targets, it is estimated that by 2050 some 60% of today’s non-domestic buildings will still be in use. These new measures are squarely aimed at improving existing building stock.
The key proposals
Focusing on non-domestic property, the key proposals are as follows:
- It will be illegal to let non-domestic properties below an EPC rating of "E" unless an exemption applies.
- Enforcement will be the responsibility of Trading Standards Officers.
- The new Regulations will only apply to lettings – owner occupied properties will not be affected.
- Proposed exemptions include:
- if an existing tenant refuses to consent to the landlord's proposals to carry out works to raise the EPC rating above an "F". Be aware that this exemption may be temporary until the earlier of a new letting to a different tenant or 1 April 2023;
- if the property is below an "E" rating but a Green Deal finance package is not applicable. The Green Deal finance package avoids upfront costs, but finances the expenditure from energy savings accrued subsequent to the works but only if the property meets the "Golden Rule" criteria. The "Golden Rule" is that the costs of energy efficiency improvements to properties must "pay for themselves" through the resulting savings on electricity and gas bills;
- where an EPC is not required for the property. These include listed buildings, places of worship, temporary buildings with a planned time of use of under two years, residential buildings which are intended to be used less than four months of the year and stand-alone buildings with a total useful floor area of less than 50 m2; and
- where an independent valuation shows the energy saving works would materially reduce the value of the property.
While this legislation is still to be formulated, carbon reduction and energy costs are ever present. In the interim, there is a benefit for landlords in identifying properties below an EPC rating of "E" and necessary or desirable improvements that may be undertaken.
Green Deal finance is an avenue to explore, ideally in consultation with the tenants. It may also be helpful to understand landlord and tenant priorities and concerns in case this affects good relations otherwise existing. This should also be protective for income earning real estate to avoid any potential pitfalls arising in future with any implemented new regime.