From next month, 1st April, landlords will not be allowed to sell or let out residential or commercial properties in England or Wales that are F or G rated EPC – the lowest two grades of energy efficiency. There has been much in the press about this regulation enforcement over the last few years, and many landlords have their plans in place - but they shouldn’t become complacent…
From April 2018, the Minimum Energy Efficiency Standards (MEES) regulations will be enforced on new leases and existing leases that are being renewed and will have a significant impact on landlords and occupiers who may look to sublet space; some properties could be unmarketable unless upgraded to meet the minimum standards required.
Landlords will have (hopefully) been working to have a plan in place to comply with the imminent regulations and avoid costly fines for non-compliance and protect the value of their property assets. Although not essential to have all the works completed by the deadline of April 2018, a structured plan needs to be in place.
Whose responsibility is it to comply?
Should the EPC rating fall below the minimum E rating, it is the landlord’s responsibility – not the tenant’s – to carry out works to upgrade the property, raise the rating and comply with the regulations. Depending on the extent of work necessary to upgrade the property it is likely to impact on the outgoing tenant’s dilapidations liability.
This should include assessing the EPC rating for all properties in the portfolio and drawing up a plan to improve the energy efficiency of any in the F or G category. It is also worth reviewing the existing EPC to consider whether the EPC rating is correct and review the level of assessment has been completed. It has often been the case that EPC’s have been commissioned at the minimum cost possible. This has resulted in an inappropriate level of assessment being undertaken for the building type which may have resulted in an inaccurate EPC rating.
It is also important to look at the costs and benefits of improving the EPC against the business plan for each property.
There will be substantial fines for non-compliance, enforced by Local Weights and Measures Authorities who will have the power to impose civil penalties based on the rateable value of the property, which could be up to a maximum of £150,000 per building.
Where an enforcement authority considers that a landlord may be in breach the requirements, it may serve a compliance notice requiring the landlord to provide evidence to the enforcement authority. If found to be in breach, the landlord may be issued a notice imposing a financial penalty, and a publication of the penalty on a register.
There are certain exemptions to MEES Regulations which will be judged on a case-by-case basis. For example, if the works are more expensive than the value of the property, or if the cost of the works will exceed the expected energy savings calculated over a set timescale, or if there are no “relevant energy efficiency improvements” that can be made or such improvements will not improve the EPC rating, or if upgrading would have a negative impact on a listed building. Landlords should seek professional advice if this applies to them.
So what can we expect next?
Landlords who have their MEES plan in place for April shouldn’t become complacent and assume work stops there. The built environment has been identified by Government as a major contributor to Greenhouse Gas emissions and therefore poses a threat to the UK meeting its carbon reduction targets for 2020 and 2050.
From 1 April 2020 the requirements will apply to all private rented properties in England and Wales – even where there has been no change in tenancy arrangements and from 1 April 2023 this will also apply for non-domestic properties. Commercial landlords will not be able to continue to let properties that do not meet the energy efficiency standards.
Last but not least, seek professional advice on the legislation and the impact it will have on the portfolio. Specialist advice can help landlords to draw up a list of actions to achieve the minimum standards required and assist in project managing any necessary improvement works.
For more information please contact Karen Wilkins, Partner, Building Surveying.