EPCs and minimum energy efficiency standards for private rented properties


Author: Joe Hobson


The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (Regulations) introduced measures to improve energy efficiency in both residential and non-residential private rented properties in England and Wales. The purpose of this article is to provide an overview of the changes brought about by the Regulations and to consider their practical implications for the private rental sector.

Principal changes

The two principal changes implemented by the Regulations were:

  1. to enable a tenant of residential property to make energy efficiency improvements; and
  2. to impose a requirement on landlords to ensure that their residential and non-residential properties reach minimum energy efficiency standards (MEES) and have an energy performance certificate (EPC) rating of band “E” or above before they can be let.

This article will provide a summary of the first of these changes but will focus its review on the second.

Tenant’s energy efficiency improvements

Since 1 April 2016, the Regulations have enabled a tenant of residential property to apply for landlord’s consent to making improvements to the property that benefit its energy efficiency.

The tenant’s entitlement to do so applies even where the tenant’s lease contains a restriction from making such improvements, subject to certain exceptions, and the Regulations impose a requirement on the landlord (and any superior landlord) not to unreasonably withhold their consent.

The Regulations establish a process for requesting consent to carry out improvements, the manner in which the request must be dealt with, the grounds for refusal, and the right for the tenant to appeal in the event of a dispute.

Landlord’s minimum energy efficiency standards

Timing for implementation

The Regulations impose a requirement on landlords of residential and non-residential property to ensure that their property meets the MEES, subject to certain exceptions. Unless the property meets the standards required by the Regulations evidenced by an EPC rating of band “E” or above, the landlord will be unable:

  1. from and including 1 April 2018: to grant a new tenancy or extend or renew an existing tenancy of a residential or non-residential property;
  2. from and including 1 April 2020: to continue to let a residential property; or
  3. from and including 1 April 2023: to continue to let a non-residential property.

Exceptions and exemptions

The requirement to comply with the MEES imposed by the Regulations only applies to properties that are required to have an EPC and are subject to a tenancy, and do not apply to properties let for less than six months (with no right of renewal) or for more than 99 years. As a result, this automatically catches most assured shorthold tenancies, as the minimum term is six months, and excludes residential flats where the term exceeds 99 years.

In addition, the Regulations provide a number of exemptions that are available to landlords, most notably:

  1. seven year payback test – where the landlord can show that the improvements would not be cost effective within a seven year payback period;
  2. third party consent – where a third party’s consent is required to carry out the energy efficiency improvements but cannot be obtained by the landlord following reasonable endeavours; and
  3. devaluation – where the landlord can show that the improvements would reduce the value of the property by 5% or more.

It is worth noting that the exemptions do not apply indefinitely and will not automatically transfer with the property on the sale of the landlord’s interest, so any purchasers or transferees (including intra-group transferees) will need to re-register the exemption or take steps to ensure that the property complies with the Regulations.

Registering exemptions

Where a landlord intends to rely on an exemption, it must register its entitlement to do so on the Private Rented Sector Exemption Register (PRS Register) by supplying details of the exemption and accompanying evidence of eligibility prior to 1 April 2018.

The exemptions are self-certified by the landlords claiming entitlement and monitored by local authorities and it is worth noting that certain information on the PRS Register will be publicly available, including the names of landlords, addresses of properties with the benefit of exemption, and details of the exemption relied upon.

It is also worth noting that there are penalties for registering false or misleading information on the PRS Register, equivalent to those referred to in the penalty notices section below but subject to a maximum fine of £5,000.

Enforcement and consequences for non-compliance

Local authorities will be responsible for enforcement of non-compliance with the MEES and the powers bestowed upon them by the Regulations include the ability to issue:

  1. compliance notices – enabling local authorities to require any current or previous landlords who have been in breach of the Regulations within the preceding 12 months to provide and/or have to register on the PRS Register such information as the local authority may require; and
  2. penalty notices – enabling local authorities to penalise any current or previous landlords who have  been in breach of the prohibition on letting properties that do not comply with the MEES or who have not complied with a compliance notice, by (a) publishing details of the breach on the PRS Register, which will be publicly accessible for a period of at least 12 months; and
    (b) imposing a financial penalty on the landlord of up to £150,000, calculated by reference to the duration and severity of the breach and the rateable value of the property.

Conclusions and next steps

The Regulations contain extensive and detailed provisions concerning the implementation of the MEES, the type of residential and non-residential properties the Regulations relate to, and the circumstances in which they need to be complied with.  The intention of this article has been to provide a practical overview of the main terms.

What is clear from the changes already brought about by the Regulations and those taking effect from 1 April 2018 is that landlords will need to start considering the potential impact of the MEES upon their ability to market, deal with and maintain the value of their properties and in particular:

  • landlords of properties that currently fall beneath the EPC rating of band “E” will need to review the extent and cost of improvement works that would be required to bring their properties up to the minimum standard and/or review the potential exemptions available. If an exemption is to be relied upon, landlords will need to arrange its registration on the PRS Register and prepare sufficient evidence to support their entitlement to do so;
  • landlords of properties that are within band “E” will need to be aware of the potential change in EPC calculations as a result of the anticipated review of the Standard Assessment Procedure (SAP) methodology, used by the government to calculate EPC ratings, in relation to residential property in autumn 2017 and in relation to non-residential properties before 2023, and consider whether an increase in the standard required could adversely affect their property’s energy efficiency rating; and
  • all landlords should also be aware of the relevant provisions of their tenant’s lease, in particular the landlord’s ability to recover the cost of improvement works from the tenant through service charge, the impact upon outstanding rent reviews, and the implications for dilapidations and yielding up provisions at the end of the term of the lease.

If they have not already done so, landlords should seek professional advice on the extent to which they will be affected by the Regulations, the availability and application of any exemptions, their legal obligations and the terms of their tenants’ leases, and the financial and reputational risks that could arise from a failure to comply.

Fladgate would be happy to offer such advice should it be required.

Joe Hobson, Associate, Fladgate LLP (jhobson@fladgate.com)

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