On 1 April it became unlawful for a landlord to grant a new tenancy of a property with an EPC rating of below E (a sub-standard property) unless an exemption had been registered. So does this mean that owners of sub-standard properties will no longer be able to let them?
Landlords will be relieved to hear that the prohibition is unlikely to mean that they cannot let their properties. However, they will need to take some action before doing so.
The first thing to consider is whether the letting falls within the scope of The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (commonly known as the MEES Regulations).
Do the MEES Regulations apply?
The MEES Regulations only apply if the property is one that is required to have an EPC. There are very few properties that do not need an EPC. An EPC is not, for example, required if energy is not used to condition the indoor climate. Therefore, if the property does not have heating or air conditioning, the likelihood is that an EPC is not required and the MEES Regulations will not apply.
If an EPC is required, a landlord of a commercial property will not have to comply with the MEES Regulations if it is granting a very long lease (99 years or more) or a very short lease (up to six months). See our flowchart for more details of when the MEES Regulations will apply.
Landlords with portfolios of both commercial and residential properties must remember that the rules are different in relation to tenancies of domestic properties. A property will fall within the MEES Regulations if it is let under an assured tenancy, a regulated tenancy or certain types of agricultural tenancies. However, there are exemptions for properties let by registered providers of social housing. See our flowchart for further details.
What can landlords do if the MEES Regulations apply?
If the letting is within the scope of the MEES Regulations, the landlord needs to consider whether an exemption applies. An exemption could apply if:
- The landlord has carried out all relevant energy efficiency improvements, or there are none that could be made, and the property is still sub-standard;
- Third party consent is required and cannot be obtained;
- The works would devalue the property (or the building of which it forms part) by more than 5%; or
- A temporary exemption applies.
See our diagram on relevant energy efficiency improvements, and our legal insight on the other exemptions, for further information.
What action do landlords need to take?
Landlords negotiating tenancies of sub-standard properties must consider the MEES Regulations early on in the transaction. Any exemption must be registered on the PRS Exemptions Register before the grant of the lease.
Even if a landlord can register an exemption, and let a sub-standard property, it is likely to command a much lower rent than a property with an EPC rating of E or above. Furthermore, the registration of an exemption could be administratively burdensome, and the landlord will need to put in place processes to ensure that exemptions do not lapse, putting it in breach of the MEES Regulations. Keeping exemptions up to date is not designed to be quick and easy, and a landlord may find it simpler just to bring the property up to an E rating.
Landlords could also find tenants more reluctant to take leases of sub-standard properties, even if the rent is lower than equivalent properties with better EPC ratings. Although any fine would be paid, and reputational damage suffered, by the landlord, the MEES Regulations will still have an impact on tenants. If a tenant wants the freedom to sub-let, it will want to know that it can do so without being in breach of the Regulations.