It’s a busy time for residential landlords, with a raft of new rules and regulations to get to grips with.
In the first of a series of articles, we look at amendments to the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015, also known as the minimum energy efficiency standards (‘MEES’), which came into effect on 1 April 2019.
Since April 2018, properties in the private rented sector have been required to have a minimum Energy Performance Certificate (EPC) rating of E. Properties with an energy rating of F or G are characterised as ‘sub-standard’, and landlords granting new tenancies of such properties have either had to carry out improvements to bring them up to an E standard, or register one of the permitted exemptions on the PRS Exemption Register.
There was an exemption for landlords who were unable to obtain government funding for energy improvements - the ‘No Cost to the Landlord’ exemption - but this has now been removed, making landlords liable for efficiency improvements up to a cap of £3,500 per property.
£3,500 spending cap
Residential landlords in England and Wales must now self-fund energy efficiency improvements to sub-standard properties, subject to an upper spending cap of £3,500 on the overall amount spent. The cap includes both VAT and any third-party funding, such as Green Deal finance or local authority grants.
Improvements must be carried out before sub-standard properties are let on a new tenancy, and before a tenancy is renewed or continued on or after 1 April 2020.
Why have the Regulations been amended?
The 2015 Regulations required landlords to make improvements where they could be funded ‘at no cost to the landlord’. At the time, it was anticipated that ‘Pay As You Save’ finance, provided mainly under the Green Deal, would fund the majority of the required improvements, along with other third-party funding options, such as local authority grants.
With the end of public investment in the Green Deal, although the scheme continues with private finance providers, take-up remains low and the rate of improvements also remains low. Approximately 1,900 ‘no funding’ exemptions have been registered on the PRS Register to date.
A number of policy amendments have therefore been introduced, the key change being the removal of the ‘No Cost to the Landlord’ exemption. Domestic landlords must now bring sub-standard properties up to an EPC rating of E regardless of whether they can obtain third-party funding.
Where third-party funding is unavailable and there are no identified measures which can be installed for £3,500 or less, a landlord may register a ‘High Cost’ exemption on the PRS Register.
Recognition of previous investment
Where previous energy efficiency improvements have been made to a sub-standard property, the landlord may subtract any costs incurred on or after 1 October 2017 from the spending cap to determine the value of any additional improvements that need to be made. This gives due recognition to recent energy efficiency investments by landlords.
Registering a ‘High Cost’ exemption
Exemptions can be registered on the PRS Register which is available via the government’s website: PRS Register.
Where even the cheapest recommended improvement exceeds the value of the cap, and a landlord wants to register a ‘High Cost’ exemption, it will now have to submit copies of three quotations from qualified installers for purchasing and installing the cheapest measure, demonstrating that this improvement exceeds the cost cap. This is intended to deter false registrations from being made or being made without a full investigation of the market costs of the relevant improvement.
This exemption should only be used where there are no improvements which can be made for £3,500 or less (government analysis suggests that the majority of F and G rated properties can receive at least one improvement for this amount or less). However, if the recommended improvements fail to improve the property to EPC E, then the ‘All Improvements Made’ exemption should be registered.
Curtailment of ‘No Third-Party Finance’ exemption
Under the 2015 Regulations, ‘No Third-party Finance’ exemptions registered on the PRS Register ran for a period of five years. Under the amended Regulations, where a landlord has registered an exemption on the basis that it was unable to install the measure(s) due to a lack of third-party finance, and the exemption was registered on or after 1 October 2017, the validity of the exemption will now expire on 1 April 2020 instead of running for the full five years.
The new termination date gives landlords who have registered such an exemption under the 2015 Regulations a reasonable time to comply with the new requirements.
Removal of ‘Tenant Consent’ exemption
This exemption was available where a landlord had secured Green Deal finance, but the tenant did not consent to a finance charge being added to its energy bill. This exemption has also been removed and landlords in this position must now consider alternative funding options instead of merely registering an exemption.
The Regulations are enforced by local authorities, which have powers to impose substantial penalties on landlords for non-compliance with MEES, up to a maximum amount of £5,000 per property, per breach. A landlord will breach the Regulations if it:
- Rents out a non-compliant property - up to £2,000 during the first three months, rising to £4,000 after three months
- Provides false or misleading information on the PRS Register – up to £1,000
- Fails to comply with a compliance notice – up to £2,000.
In addition, a local authority may issue a ‘publication penalty’, publishing details of the landlord’s breach on a publicly accessible part of the PRS Register.
If you are a landlord of one or more residential properties, you should familiarise yourself with the government’s updated guidance to the Regulations MEES Guidance for Domestic Properties which contains a good deal of useful information about the various exemptions and how to register them. If you need help and further advice, please get in touch with Jane Bloomer or Deborah Caldwell. Alternativley, please view our Property Investment page to see how we can help any current or future landlords manage their property portfolio.