As from the 1st April 2018 there will be a requirement for any properties rented out in the private rented sector to normally have a minimum energy performance rating of E on an Energy Performance Certificate (EPC). The regulations will come into force for new lets and renewals of tenancies with effect from 1st April 2018 and for all existing tenancies on 1st April 2020. It will be unlawful to rent a property which breaches the requirement for a minimum E rating, unless there is an applicable exemption. A civil penalty of up to £4,000 will be imposed for breaches. This guidance summarizes the regulations. There are separate regulations effective from 1st April 2016 under which a tenant can apply for consent to carry out energy efficiency improvements in privately rented properties.
For most landlords this will mean that they will no longer be able to rent out a property with a rating of F or G after April 1st 2018. As such landlords with properties in this EPC bracket should begin preparing now for April 1st. However, there are several nuances and exceptions, which this guide covers in detail.
When energy efficiency improvements are compulsory
Where at any time on or after 1st April 2018 a landlord lets a privately rented property which is F or G rated on a current legally required EPC then energy efficiency improvements must be carried out to bring the property up to at least an E rating before the property is rented out, unless the landlord qualifies for an exemption and the exemption is registered on the Public Exemptions Register.
There several ways in which you will be classed as letting a property for these purposes:
• You grant a new assured tenancy, including a shorthold
• You renew or extend an existing assured tenancy, including a shorthold, by agreement with the tenant. This can be done when you grant a fresh tenancy to the same tenant or simply agree with the tenant that the existing tenancy will be extended
• A statutory periodic tenancy comes into existence following the ending of a fixed term assured tenancy (shorthold or non-shorthold). At that point the law imposes a new tenancy on the parties where the tenant stays after the fixed term has run out. This is treated as a new letting for these purposes
• A new assured tenancy by succession comes into existence when a family member takes over a Rent Act protected tenancy
• A new tenancy is granted to a Rent Act protected tenant of the same or a different property owned by the same landlord
• An agricultural occupancy or similar tenancy is granted, renewed or extended
NB: This note does not deal further with tenancies of agricultural dwellings.
In all the above cases the requirement to carry out energy efficiency improvements for non-compliant properties will arise where the property has a valid current EPC (i.e. no more than 10 years old) and the property is legally required to have an EPC because:
• The property which is being let or has in the past been let
• The property has been sold
• The property has been improved and building regulation requirements meant that an EPC is required
The requirement to have an EPC is not just looked at in respect of the property itself which is being let out. It also applies where there has been a requirement for the building, of which the property being let is part, to also have an EPC. This is particularly relevant to non-self-contained units such as bedsits and the position regarding these is explained below under the Section “Flats and bedsits”.
It should be noted that if the letting is not legally an assured tenancy (shorthold or not) or one of the other tenancy types within the scope of the Regulations then the Minimum Energy Efficiency Standard does not apply. The sections on Assured Tenancies and the Exclusions below explain this issue in more detail.
The Examples below help explain some of these issues.
These rules regarding new tenancies are ongoing from 1st April 2018 onwards but, additionally, as from 1st April 2020 they will apply to continuing tenancies which are already in existence on that date. They will then apply on an ongoing basis to continuing tenancies which have a current EPC, if there is a legal requirement for the property to have an EPC.
From 1st April 2020 the Minimum Energy Efficiency requirement will apply to continuing tenancies where there is a valid current EPC for the property, and an EPC is legally required to be in place. The property must therefore be brought up to the minimum E rating before 1st April 2020 to comply with the Regulations, unless an exemption is available and is claimed by being registered in the Public Exemptions Register. This applies to the following ongoing tenancies:
• Assured tenancies, including a shorthold
• Ongoing Rent Act protected tenancies. In practice, however, this means that it will only apply where the property which is let (or where it is part of a building) then the building (as a whole) has been legally required to have an EPC which is most likely to occur if it has been sold
• Assured agricultural occupancy or similar tenancies relating to agricultural dwellings
NB: Again we do not deal further with the lettings of agricultural dwellings in this Guide.
Scope of the Regulations
The Regulations apply to most, but not all, domestic private rented sector properties in England and Wales. It covers the following tenancy types:
• A tenancy which is a regulated tenancy for the purposes of the Rent Acts. In effect, this will be a tenancy where there is a Rent Act protected statutory tenancy (see further below regarding Rent Act tenancies and the circumstances in which compliance with the Regulations will be needed)
• Properties let on a tenancy which is an assured agricultural occupancy and similar tenancies relating to agricultural dwellings
• Properties let under an assured tenancy including an assured shorthold tenancy
Certain lets are outside the scope of the assured tenancy regime and therefore, in effect, there is an additional exemption for these types of tenancy.
Properties within Scope
If a property is legally required to have an EPC then it is potentially within the scope of the Regulations. This means:
• Properties within the scope will include any domestic privately rented property which: has an EPC, and is either (i) required to have an EPC; or (ii) is within a larger unit which itself was required to have an EPC, either at point of sale, or point of let. No changes are made to existing regulations regarding the provision of EPCs. This means that it is the sale or letting of a property which can bring a property within the scope of the Regulations. Similarly, if a bedsit is part of a block that is sold, then the EPC requirement on the sale of the block will bring it within the scope of the regulations
• Flats and houses are subject to the regulations if they are legally required to have an EPC (as a result of being sold or let). In the case of flats this means a self-contained unit. Non-self-contained units such as bedsits do not require an individual EPC but may require one for the whole property
• If a property does not actually have an EPC, then the regulations do not apply
The EPC must be the current EPC if there is one and this must be no more than 10 years old. It follows that if an EPC was obtained when it was required but has run out after 10 years there is no automatic requirement to have another one produced, so that the minimum energy efficiency requirement will not apply at that stage. A further EPC will only be needed the next time that a sale or letting takes place.
If it remains current a new EPC is not required, each time there is a change of tenancy (or a sale) so long as the existing certificate is no more than 10 years old. A further EPC can be commissioned and if this is done then this will become the current one, replacing any earlier certificate. There is no automatic requirement to produce a new EPC after carrying out energy efficiency improvements but this is recommended as the new EPC will then reflect the improvements made. A post installation EPC can likely be the easiest way for landlords to demonstrate that they have complied with the Regulations.
If an EPC has run out without there being a further trigger requiring one, then as the property no longer has a valid EPC (and there remains no requirement to have one) the property will fall outside the scope of the Regulations.
Where a landlord obtains an EPC, but is not legally required to have one, the landlord will not be required to meet the minimum standard. A voluntary EPC of this type may be registered on the official EPC Data Base but there is no requirement to do so. If a voluntary EPC has been registered in this way it will supersede any earlier EPC that may have existed for the property, but official registration of a voluntary EPC will not require the landlord to comply with the minimum standard.
Examples – EPC Requirements and 10 year validity
A landlord intends to let the property on a new tenancy from June 2018. If a property already has an obligatory EPC which is less than 10 years old, then this EPC can be relied upon to let the property. If the EPC is more than 10 years old or if there is no EPC (e.g. because the property has not previously been let) the landlord must obtain an EPC. The Minimum Energy Efficiency Standards will apply where the EPC shows a rating of F or G so works must be carried out up to a minimum E rating unless an exemption applies and is registered.
A property is let under a 10 year tenancy with an EPC F rating where the EPC was obtained, as legally required, in 2016. The Regulations here will not take effect until 1st April 2020. On 1st April 2020 as the landlord is continuing to let the property he/she must comply with the Minimum Energy Efficiency requirements. There is a valid EPC which the landlord was required to obtain at the time of the letting. The EPC will continue to be valid until 2026. The landlord must carry out works to bring the property up to a minimum of E by 1st April 2020 or qualify for and register an exemption to continue to let the property legally.
The property has been let for 10 years with an F rating. The tenancy started in 2009 when an EPC was obtained as required. On 1st April 2020 the landlord is continuing to let the property. However, in this example the landlord will not be subject to the Minimum Energy Efficiency Standards because the EPC expired in 2019. There is no legal requirement on the landlord to obtain a new EPC at that point because the tenancy is ongoing. The landlord will only be required to obtain a new EPC, which will then trigger an obligation to comply, if they intend to sell or relet the property. This can include a letting to the current tenant or to a new tenant.
The situation is the same as in Example 3. However, in 2023 the tenant wishes to sub-let the property. The tenant (who will become the landlord of the sub-tenant) will be required to obtain an EPC at this point. If the new EPC then shows an F or G rating then the Minimum Energy Efficiency requirements must be complied with because the property now has a valid EPC which is legally required.
Flats and bedsits
Flats and houses are subject to the regulations. In the case of flats this means self-contained units and they require their own individual EPC at the point of sale or letting. Non-self-contained units such as bedsits do not require an individual EPC.
If a bedsit is within a property that does have an EPC, then the Regulations will need to be complied with before the bedsit can be rented out if it is F or G rated (or an exemption is registered). Although normally bedsits do not need an EPC, where the house containing the bedsit has been sold the whole property needs to have an EPC. In those cases, the Regulations will apply.
If a flat has its own obligatory EPC as well as the building containing the flat, then it is the EPC for the flat (not the building) which issued to show whether the minimum energy efficiency standard is met.
Buildings excluded from scope of requirements
The following domestic buildings are excluded from the scope of the requirements:
• Buildings and monuments officially protected as part of a designated environment or because of their special architectural historical merit insofar as requirements with certain energy efficiency requirements would unacceptably alter their character or appearance. This includes listed buildings. However, see the next section on Listed Buildings
• Temporary buildings with a planned timed use of 2 years or less
• Residential buildings which are intended to be used less than 4 months of the year
• Stand alone buildings with a total usable floor area of less than 50 square meters
Listed Buildings etc.
The extent of the exclusion of listed buildings from the scope of the requirements is unclear. Likewise, in the case of dwellings located within conservation areas. The Regulations state that this exemption is “insofar as compliance with certain minimum energy efficiency requirements which would unacceptably alter their character or appearance”. This exemption is based on a similarly worded exemption from the need to obtain an EPC. Clearly, if a listed building or dwelling within a conservation area does not have an EPC then the Regulations do not apply because only the existence of an EPC triggers the need to comply with the minimum standards. There is a widely held view that all listed buildings are exempt from the need to obtain an EPC, even if they are sold or let out, but, again, the exact scope of this exemption is not clear. The RLA has prepared a more detailed note on this complex subject.
Notwithstanding the above, for the purposes of the Minimum Energy Efficiency Regulations, if the property has been sold or let since the EPC requirements were first introduced and the property does have an EPC, you should assume the Regulations apply and that the minimum E standard must be attained, subject to any relevant, registered exemption. You should consult with your local planning authority to see what alterations would be acceptable to them. If you cannot obtain listed building consent, then the consents exemption can be relied upon so long as it is registered.
In most instances, residential accommodation will be let under an assured shorthold tenancy. This is the main type of assured tenancy in use in the private rented sector. Where an assured tenancy (whether shorthold or not) is granted on or after 1st April 2018, or such a tenancy continues at any time after 1st April 2020, then the minimum E rating is required. If this is not achieved landlords will be prohibited from letting substandard properties (unless an exemption applies). A tenancy is granted when it is entered, i.e. when a binding contract exists between the landlord and the tenant, even though the date on which the tenant is permitted to take up possession of the property is after the date on which the tenancy is entered into.
As from 1st April 2020 the Regulations will apply to ongoing assured tenancies in existence on or after that date, as well, of course, as any new assured tenancies granted after that date.
However, not all residential lettings will be assured tenancies. If a dwelling is let otherwise than under an assured tenancy, whether shorthold or not, it will not be a Domestic PR property so it will be outside the scope of the Regulations altogether, unless it is let under one of the other tenancy types mentioned in the Section “Scope of Regulations”. For these purposes a dwelling is defined by the legislation as a building or part of a building occupied or intended to be occupied as a separate dwelling.
To determine whether the property is a Domestic PR property therefore you need to consider if the requirements for an assured tenancy (including a shorthold) exist. A tenancy can move in and out of assured status depending on whether the required conditions for an assured tenancy are currently met.
An assured tenancy is the letting of a dwelling which is occupied as the tenant’s only or principal home, or by at least one of them if there are joint tenants. The tenant or tenants must be individuals and they must pay more than £250 per annum or less than £100,000 per annum. A dwelling may be a self-contained unit such as a house or flat but for the property to qualify as a dwelling the tenant need only have exclusive occupation of at least one room, such as a bedsit, even though it is non-self-contained and the tenant shares other accommodation with other tenants. Non-self-contained accommodation of this kind however does not require an individual EPC so it will be outside the scope of the Regulations anyway unless it is part of a building which itself has a valid EPC and is required to have one, e.g. because the building itself has been previously sold.
There must be a tenancy; and not a licence. The tenancy/licence distinction is not an easy one and if you are unsure you need to take your own legal advice. Broadly speaking, there will be a licence and not a tenancy where the agreement is with a lodger as where the occupier shares living accommodation with the owner this will be a licence agreement.
If a licence is granted to an employee under a service occupancy where the employee is required to occupy the accommodation for the better performance of his/her duties, e.g. a caretaker, this will not fall within the scope of the non-domestic PR regime either so long as a licence exists as opposed to a tenancy (if there is a letting to an employee however the position may be different and this is an area on which advice will be required as to the specific circumstances applicable).
Tenancies of non-domestic premises are subject to similar minimum energy efficiency requirements but the rules are different. Most importantly this includes the date when Regulations start apply to continuing tenancies. For non-domestic properties, they only apply from 1st April 2023 for existing tenancies. However, for when new tenancies are granted the same starting date, 1st April 2018, applies.
When it comes to deciding whether premises are domestic or non-domestic PR properties for the purposes of the Regulations, there is an important difference in definitions of the two types of properties. This is because non-domestic PR property is defined as any rented property that is not a dwelling, which means either a building let as a whole (e.g. a house) or, alternatively, part of a building (e.g. a flat) occupied or intended to be occupied as a separate dwelling. Unless, therefore, there is a separate individual letting of an individual separate dwelling under one of the specified tenancy types referred to above it cannot be a Domestic PR property.
If it is a residential non-self contained unit (e.g. a bedsit) then it does not require an individual EPC so it is also outside the scope of the Regulations, unless the building of which it is part has an EPC (where it is legally obliged to have one).
However, if a block of flats (or a house containing bedsits) is let as a whole as opposed to an individual flat, this will fall within the definition of non-domestic PR property, as it is not a letting of an individual self contained unit. The definition of non-domestic PR property does include all other property uses (other than individual self contained residential units such as houses and flats), even though they may be residential in nature.
The concept of premises let as a dwelling requires you to look at the purposes of the latest contract, whether written or inferred from actions by both parties, rather than the use to which the property is put by the occupier. In deciding whether a property is a dwelling you need to look at the terms of the tenancy contract, as well as the nature of the premises. A “dwelling” is a place where someone lives or makes their home. It therefore excludes lettings for holiday purposes and holiday homes, as well as lettings as a short-term expedient, e.g. a refuge. Please note, however, that this section reflects the views of the RLA as to the correct interpretation of what is a separate dwelling. This is in line with current case law but there is no decided case law regarding the definition of what is a separate dwelling for the purposes of an EPC, which is the governing definition for the purposes of the Minimum Energy Efficiency Regulations.
Unlike under the definition “non-domestic PR property” there is no exclusion for longer leases; nor short term lettings. A letting for 99 years or more of non-domestic PR property falls outside the scope of the regulations. There is no exemption for long term tenancies as such from the definition of an assured tenancy, but frequently long leases are granted at a peppercorn or a low ground rent so they are within the low rent exemption and are then outside the assured tenancy regime for this reason.
Rent Act protected tenancies
Regulated tenancies subject to the Rent Act 1977 are tenancies which can potentially be within the scope of the Regulations. It has not been possible to grant new regulated tenancies since the 15th January 1989, well before EPCs were first introduced. The only exception is where there is the grant of a new tenancy to an existing Rent Act protected tenant, whether of the same or a different property owned by the same landlord. In practice, it is only likely that these properties will be subject to the Regulations where an EPC has been obtained when the property was sold (or modified). As they are often unimproved it is quite possible that Rent Act tenancies will have an F and G or rating. Tenants will be called statutory tenants (not to be confused with statutory periodic tenancies).
After the 1st April 2018 if an existing statutory tenant dies then a new tenancy, an assured tenancy by succession, will be automatically granted to a family member living with the deceased (so long as they have lived with him or her at least two years before his or her death). This could potentially trigger the regulations but only if there was an existing EPC which was legally required and remains valid, normally because the property has previously been sold (subject to the sitting tenancy). The landlord can then register a temporary exemption for six months but within this time must carry out the necessary improvement works to meet the minimum E rating, unless another exemption is applicable and is registered. On the other hand, if the existing statutory tenant dies leaving a spouse or partner then there is a transmission of the existing statutory tenancy to that spouse or partner. This is not the grant of a new tenancy, so no question of compliance arises at that point.
From 1st April 2020 onwards if the property has been required to have an EPC, e.g. due to a sale, then the Regulations will apply if the property has an F or G rating. Energy efficiency improvements must then be carried out to bring the property up to a minimum E unless an exemption applies and is registered by the landlord.
Improvements which can be required
Improvement work which can be required is any energy efficiency improvement work which qualified for Green Deal and the installation of gas for an off-gas property so long as the mains are within 23 meters from the property. A list of eligible improvements appears below.
So long as the minimum E rating is obtained, it is left to the landlord to choose which works need to be carried out. Obviously there is nothing to stop a higher rating being achieved.
Sub Standard Properties
Properties within the scope of the Regulations which do not meet the minimum E requirement are referred to as sub-standard properties. There is then an obligation on the landlord to bring the property up to the required standard unless an exemption applies and is registered and a prohibition on letting them unless the work is done.
Prohibition on letting
A domestic private rented sector property is substandard if the EPC rating is F or G, unless an exemption applies. The legislation prohibits a landlord from letting out a substandard property. If there is an EPC in place which shows that the property is an F or G, then it must not be let; otherwise the landlord is liable to penalties. This is subject to any available exemptions. Energy efficiency improvements must be carried out to bring the property up to an E rating at the minimum, unless one of the exemptions is applicable. If the work cannot be carried out to meet the Green Deal Golden Rule, then there is potentially an exemption. Under the Golden Rule there should be no upfront costs (or any net cost to the landlord) because savings resulting from the works should repay their cost over the expected lifetime of the works.
If a landlord lets and continues to let the property in breach of the regulations, however, the breach does not affect the validity or legality of the tenancy itself, so the rent continues to be payable.
Exemptions, restrictions on making improvements
Only appropriate, permissible and cost-effective improvements are required under the regulations. Landlords will be eligible for an exemption from reaching the minimum standard where they can provide evidence that one of the following applies:
• They have undertaken those improvements that are cost-effective but remain below an E EPC rating. As currently defined cost-effective measures are those improvements that are capable of being installed within the Green Deal’s Golden Rule. This ensures that landlords will not face upfront or net costs for the improvement works. However, the scope of this exemption is under review and may be replaced by a cost cap. The improvements that must be considered are all the relevant energy efficiency improvements as required for the property contained in the Section “Improvements which can be required” at the end of this Guidance
• Where they are unable to obtain funding via the Energy Company Obligation (ECO), Green Deal Finance or local authority grants. The landlord is required by a contractual or legislative obligation to obtain a third party’s consent or permission to undertake relevant improvements relating to the minimum standard, and such consent was denied, or was provided with unreasonable conditions
• The landlord requires consent, and the occupying tenant withholds that consent. It should be noted that you need to check the tenancy agreement. A tenant’s consent may not be required where the tenancy agreement allows you to enter to carry out improvements (as opposed to just repairs), in which case no consent is needed as you are entitled, as landlord to do the work
• Measures required to improve the property are evidenced by a suitably qualified independent surveyor, for example from the Royal Institution of Chartered Surveyors (RICS), as expected to cause a capital devaluation of the property of more than 5%. Only those measures that are expected to cause such devaluation would be exempt from installation
• There will be no requirement to install wall insulation under the regulations where the landlord has obtained a written opinion, from a suitably qualified person or from the independent installer engaged to install the measure, advising that it is not an appropriate improvement due to its potential negative impact on the fabric or structure of the property (or the building of which it is part)
Temporary exemptions can apply where someone has recently become a landlord to allow time for work to be done, provided one of the following conditions are met:
• The grant of a tenancy due to prior contractual obligation (this can include a situation such as conditional contract regardless of whether it was entered into before or after the Regulations come into force)
• If a tenant becomes insolvent and a guarantor takes over the tenancy
• A new lease is created by operation of law. Importantly, this extends to situations such as a statutory periodic tenancy starting, which is a deemed tenancy starting beginning when a fixed term assured tenancy (such as a shorthold) runs out and the tenant remains in occupation. It also applies to succession by a family member on death where there is a Rent Act protected tenancy
• As from 1st April 2020 a temporary exemption applies where someone becomes a landlord on purchasing an interest in a property and on the date of purchase it is let on an existing tenancy
In all cases the exemption is for six months from the date when the person becomes the landlord. After six months, the exemption will expire and the landlord must either have during the six month period improved the property or have registered another valid exception or exemption where the property is F or G rated and required to have an EPC.
Registration of exemptions
All exemptions (including temporary exemptions) will be required to be notified to the PRS Exemptions Register which will be operated by the Government. It is planned that this will open from 1st October 2017. It will be essentially a database of exemptions and will be open to public inspection. Failure to register any exemption will render the exemption ineffective, and will amount to non-compliance with the regulations. The Enforcement Authority will be entitled to require landlords to furnish them with evidence supporting a claim for an exemption. Landlords will also be in breach of the regulations if they claim an exemption to which they are not properly entitled.
Where someone becomes a landlord while the exemption is already registered then the new landlord must re-register the exemption. Exemptions claimed by a landlord may not pass over to a new owner or landlord on a sale or other transfer and on transfer they will cease.
Duration of exemption
Exemptions will only endure for 5 years. They will then need to be reviewed to see if they are still effective. If not the work will have to be carried out. If the exemption is lack of tenant’s consent then this will only last for 5 years or the end of the current tenancy, if sooner. As noted above temporary exemptions only last for 6 months.
Principles of the exemptions register
Information placed on the register must be current at the time the exemption is registered. The landlord will have to demonstrate that at the time of registering the exemption the circumstances relied on are applicable. The Regulations lay down what information is required to support the exemption. Enforcement authorities will automatically be notified when an exemption is registered so a landlord registering the exemption may be scrutinized to ensure compliance. Applying to register an exemption to which you are not entitled means you are non-compliant with the Regulations if the property is substandard. In those cases penalties can be imposed accordingly.
Before a landlord can register an exemption on the register they will have to set up a unique user account for the site which will include name and contact details. This account will then enable landlords to register exemptions for one or all properties to manage their exemptions via a single user portal. The landlord is then required to submit information relating to the particular property to be exempt, alongside information and evidence to support the exemption relied upon. The information required for all exemptions is as follows:
• The address of the relevant property
• Which exemption a landlord is registering
• A copy of a valid EPC for the property
An additional exemption and evidence is then required for specific exemptions. This is set out at the end of this Guidance.
A dwelling will not be a Domestic PRS property because it is not let on an assured tenancy in specified circumstances. This means therefore that the Regulations prohibiting letting of individual self contained residential properties that do not attain a minimum E rating will not apply (unless it is one of the other tenancy types within the scope of the Regulations) where they are one of the following types of property:
Let to a company
Holiday lets – these agreements normally form licences rather than tenancies and so are outside the scope.
Second homes – the requirement under an assured tenancy is that the dwelling must be occupied as an only or principal home meaning that second homes are excluded. This is a difficult area and again legal advice will need to be taken on the specific circumstances.
Dwellings let at low rents – if the rent is less than £1,000 in London or £250 elsewhere in England and Wales then the tenancy is not an assured tenancy.
Higher rents – this applies to tenancies where the rent exceeds £100,000 per annum. Where the tenancy was entered into before 1st April 1990 this will apply where the property had a high rateable value, (exceeding £1,500 in Greater London or £750 elsewhere).
Business tenancies – this means the property is let under a tenancy which qualifies for protection under the Landlord & Tenant Act 1954 rather than the Housing Act 1988.
Agricultural tenancies – land exceeding 2 acres is let together with the dwelling.
Resident landlords – This applies where the accommodation rented out is a converted flat (as opposed to a flat in a purpose build block of flats) and the landlord occupies another flat in the same building as his/her only or principal home. This is a complex exemption and specific legal advice will be needed to see if it applies.
Accommodation provided for asylum seekers – this applies where arrangements made under immigration legislation for accommodation to be let to support asylum seekers or their dependants.
Tenancies granted before 15th January 1989 – this was the date on which the Assured Tenancy Regime came into being. In this instance, you need to check particularly whether the tenancy in question is protected by the Rent Act 1977 in which case it can fall within the scope of the Regulations.
This means that in several situations, there will be an exemption from the requirement for a minimum E rating because the letting is outside the scope of the tenancies to which the Regulations apply. These do not need to be registered on a register of exemptions.
The The National Fraud Intelligence Bureau (NFIB) have warned landlords to beware of criminals, having found evidence that they’re targeting empty homes.
The fraudsters identify which properties are unoccupied, then create or purchase fake documentation linked to the address. They’ll go as far as signing up to the electoral register and registering with utility providers in order to convince banks to release the funds to them.
Once they have the money they will vanish, leaving the actual homeowner to deal with the debt.
How to protect your property
Any empty property could be at risk of falling foul of scammers, whether it’s your own home and you’re away on holiday for an extended period of time, or if it’s a buy-to-let property that is currently vacant.
However, there are steps you can take to minimise the risk and help keep fraudsters away.
The first thing to do is make sure your property is on the Land Registry. If you’re signed up to that then you can be compensated for a financial loss should anyone commit mortgage fraud.
You can also sign up to the Land Registry’s free property alert service, which allows you to register up to ten separate properties. That way, if someone tries to take out a mortgage on a property you own, you will be alerted and can take further action.
As long as the property’s in your name, performing frequent checks of your credit report will allow you to see any activity linked to your properties so you can spot any suspicious loans.
Where a dwelling is being let an Energy Performance Certificate (EPC) will be required.
An EPC is required as follows:-
Individual house/dwelling (i.e. a self contained property with its own kitchen/bathroom facilities) – one EPC for the dwelling.
Self contained flats (i.e. each behind its own front door with its own kitchen/bathroom facilities) – one EPC per flat.
Bedsits or room lets where there is a shared kitchen, toilet and/or bathroom (e.g. a property where each room has its own tenancy agreement) – No EPC is required.
Shared flats/houses (e.g. a letting of a whole flat or house to students/young professionals etc on a single tenancy agreement) – one EPC for the whole house.
Mixed self contained and non self contained accommodation – one EPC for each self contained flat/unit but no EPC for the remainder of the property.
A room in a hall of residence or hostel – no EPC is required.
There are fixed penalties for failing to provide an EPC/make one available when required. The fixed penalty for dwellings is £200 per dwelling. There is a six month time limit for any enforcement action to be taken.
What changes have been made?
Changes took effect as from the 9th January 2013 as follows:-
Property advertisements must contain the asset rating ie. the EPC rating for the property and the SAP rating where an EPC is available.
The requirement for Property Particulars to be accompanied by a copy of the first page of the EPC has been scrapped. However, these must show the EPC rating and the SAP rating for the property if an EPC is available.
It is intended that listed buildings and ancient monuments should be excluded from the need for an EPC but it is doubtful that the wording of the relevant exemption achieves this.
In addition, further changes took effect as from 1st October 2015 for new tenancies starting on or after that date.
HOW OFTEN DO EPCS NEED TO BE RENEWED?Each certificate will last for 10 years unless major renovation work is carried out on the property. Property owners can voluntarily get a new certificate after installation of energy efficiency measures – particularly if these improve the energy rating.
If a newer EPC has been produced for a home within the ten year period, only the most recent one is valid.
WHAT DOES AN ENERGY INSPECTION INVOLVE?
Booking an Energy Inspection is like booking any other appointment; a convenient time will be arranged to visit the rental property.
During the assessment the assessor will inspect the property and collect information such as external and/or internal measurements, details about the construction, and the type of heating/hot water used in your property. In order to gather the information, the assessor will need to access all rooms, the boiler and the loft.
The assessment of a 3 bed property typically takes up to 60 minutes; larger or complex properties can take longer.
After the assessment, the assessor will send you the EPC and recommendation report. The recommendation report will contain recommendations of how the property’s energy efficiency can be improved. Each recommendation will be accompanied by the typical cost savings per year as well as what the performance rating could be after improvements are made.
DO I HAVE TO IMPROVE THE EFFICIENCY OF MY PROPERTY?
If the recommendation report comes back with suggestions to improve the efficiency of your rental property, you are currently NOT legally obligated to act on any of the recommendations. However, from April 2018, landlords will need to make energy efficiency improvements if the report comes back with a report lower than a grade E.
As of April 2016, tenants are allowed to ask permission from their landlord to undertake energy efficiency improvements on their privately rented property. The idea is that it will help them reduce their running costs.
IMPROVING ENERGY EFFICIENCY
The top five recommendations given by assessors for improving energy efficiency have been:
Cavity wall insulation
Using low energy lighting
Using thermostatic valves on radiators
Double glazing windows
WHAT ARE THE PENALTIES IF I DO NOT PROVIDE AN ENERGY PERFORMANCE CERTIFICATE (EPC)?
The provision of EPCs is enforced by the Trading Standards department of the local authority. If they receive a complaint that an EPC has not been provided they can impose a penalty charge on you of £200 for each breach. As also discussed, in the ‘Landlord requirements’ section above, landlords can face a penalty of up to £4,000 for not meeting the minimum rating of E.
Legionella Control Services for Landlords and Letting Agents
If you provide rented accommodation in the UK you now have a legal duty to control your tenants’ risk of exposure to Legionella. Whether you let or manage just one property or a substantial portfolio, Essex EPC Solutions can help you with all aspects of Legionella risk assessment, monitoring and record-keeping.
WHAT IS LEGIONELLA?
Legionnaires’ disease is a potentially fatal form of pneumonia caused by inhalation of tiny droplets of water contaminated with Legionella bacteria. Legionella can lurk in hot and cold water systems so, along with gas safety, electrical safety and fire risk management, the law now requires landlords to assess and manage water safety in their properties.
Stamp duty increase will reduce risk of house prices crashing
Price crash rating agency Moody’s believes that the increased regulation of mortgages is not only positive for the UK banking system but will also limit the risk of a sharp fall in house prices once interest rates rise.
Moody’s said that recent measures to cool the buy-to-let mortgage market will support the creditworthiness of the UK banking system by helping to ensure robust lending standards.
Riccardo Rinaldini, an analyst at Moody’s, said: “Once implemented, the UK government’s tax and stamp duty initiatives should help to temper the growth of the buy-to-let sector. This should reduce the tail risk of a sharp decline in house prices from a concentrated market sell-off when interest rates eventually rise.”
While the current favourable economic environment has helped keep buy-to-let mortgage arrears low, the sector could negatively affect UK banks if things change, Moody’s said.
“We consider buy-to-let mortgages to be inherently riskier than owner-occupied mortgages. If borrowing costs rise and rental income no longer covers landlords’ interest payments, a broad based sell-off of buy-to-let properties could fuel a fall in house prices, negatively affecting all banks and building societies in the UK,” said Rinaldini.
The 3% increase on stamp duty is set to take effect from 1 April as part of the government’s attempt to curb the buy-to-let market and free up property for first-time buyers. The basic rate of tax relief landlords can claim on properties is also set to fall to 20% from April 2017.
Greg Davies, assistant vice president in structured finance at Moody’s, said: “The Treasury’s Autumn Statement announcements have cost implications that will hamper growth in the buy-to-let market. These cost implications could deter new borrowers from entering the market, thereby dampening the demand for buy-to-let loans in the medium term.
“However, securitised transactions backed by buy-to-let mortgages will benefit from the UK’s stable housing market and strong underwriting criteria. Therefore, the decrease in buy-to-let loan origination will not have a negative impact on the performance of transactions backed by buy-to-let mortgage loans.”
The volume of outstanding buy-to-let mortgages in the UK has more than doubled from £85 billion in 2007 to £176 billion in 2015.
Interest rates are currently at a record low of 0.5%, where they have been since 2009. Many commentators forecast they will remain at this level well into 2017.
The Bank of England said it would monitor developments in buy-to-let activity in December, but did not announce any new measures to curb mortgage approvals.
It has previously expressed fears that the buy-to-let market was a potential threat to the UK’s economic recovery. There have been concerns that buy-to-let borrowers could be exposed following a downturn, which could hit the wider housing market and economy.
Legionella Risk Assessment
Under the HSE Approved Code of Practice and Guidance L8. Landlords and Person in control of premises will need to carry out a legionnaire’s risk assessment and take action if necessary.
What is Legionnaire’s disease?
Legionnaire’s disease is a severe pneumonia-like illness caused by the legionella bacteria. It is potentially a fatal form of pneumonia and everyone is susceptible to infection. The bacteria can be more harmful to some people i.e. young children, elderly, low immune system etc.
Where are the bacteria found?
Legionella Bacteria are common in natural water sources i.e. rivers, lakes and reservoirs, but this is usually in low numbers. They can also be found in purpose-built water systems such as hot and cold water systems, spa pools, cooling towers and evaporative condensers.
If YOU are a landlord or Person in control of premises, then you have health and safety duties and are required to take suitable precautions to prevent or control the risk of exposure to legionella.
Our Trained Legionella Risk Assessors will conduct a site survey with photographic evident on the property and identify any potential risks to tenants from its water system. From the survey, a details report will be produced and highlighting any potential risks and recommendations.
Landlord alert: Letting of properties with poor EPC ratings to be severely restricted from April 2018.
The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (S.I. 2015/962)
Back in September last year, we put out a briefing on this topical subject on the back of draft regulations published following completion of a public consultation. Now that the actual regulations have made their way onto the statute book, we feel that the time is right to update our analysis to help landlords and investors make initial assessments as to what they might need or want to do in response. The regulations cover both residential and commercial properties; but our analysis relates only to the provisions dealing with commercial properties.
Who and which properties the regulations apply to and those to which they don’t apply
The first essential point to note is that the regulations only apply to landlords of tenanted properties, not owner-occupiers or tenants, but it is important to be aware that an occupying tenant, who has no responsibilities under the regulations in that capacity, can become a landlord with responsibilities if, for instance, it becomes an “accidental” landlord by subletting surplus space. Use of the word “tenanted” also effectively excludes properties occupied under a licence from the effect of the regulations.
The second essential point to note is that the regulations do not apply to leases granted for a term of 99 years or more, or 6 months or less subject to caveats relating to successive short term tenancies.
The regulations only apply to properties that need to have an Energy Performance Certificate, which might not be the case for a number of reasons. If, for instance, a property has not been transacted since EPCs were introduced in April 2008, then there would have been no obligation thus far to have commissioned an assessment leading to a certificate. If a property was let under a lease for 25 years in 2007, then it might not need an EPC for many years yet, and so not be caught by the regulations at all, despite the “hard start” that kicks in on 1st April 2023 (about which, more below).
Other properties that do not currently need to have EPCs include places of worship, many listed buildings, those that are not heated or ventilated using power, buildings below a certain size, buildings that people do not ordinarily visit, buildings scheduled for demolition, industrial workshops with “low energy demand”, and most agricultural buildings, amongst others.
Transactions that do not currently require a landlord to obtain and provide an EPC to the prospective tenant include lease renewals under the Landlord and Tenant Act 1954, and lease extensions, although it must be pointed out that this analysis is to be found only in DCLG guidance notes rather than in the black letter EPC regulations, and that this will conflict with these new regulations which clearly say that they will apply to lease renewals and extensions after a short exempt period of 6 months following the grant or extension in question. Maybe the conflict will be rare and of only short term relevance as it will only arise if a lease has been successively renewed since before the EPC regulations came into force so that no EPC has thus far been required.
Where they do bite, the regulations require at least some response in respect of properties that are “sub-standard” in terms of energy efficiency. “Sub-standard” is defined in Regulation 22 as a property with an EPC whose energy performance indicator is below “E”, estimated to affect about 18% of the commercial property stock in the UK. Landlords need to be aware that this letter might change (and inevitably only in one direction) in future years, as might the level of energy efficiency that needs to be achieved to reach the level “E”.
The practical effect of the regulations, subject to the caveat and exemptions explained below
Under Regulation 23, in respect of a property that is sub-standard, a landlord cannot:-
grant a new tenancy on or after 1st April 2018, which includes the renewal or extension of an existing tenancy
allow an existing tenancy to continue after 31st March 2023
NB. Pursuant to Regulation 30, a tenancy in breach of Regulation 23 does NOT affect the validity or enforceability of any of the provisions of a tenancy, so tenants can never be required by the regulations to vacate their property because it is sub-standard or to enable works to be done to upgrade them and, crucially, landlords will still be entitled to the rent.
The big caveat, not for some reason categorised as an exemption, is that a sub-standard property CAN be let, or an existing tenancy allowed to continue, if all “relevant energy efficiency improvements” have been made or none can be made to it (Regulation 29). The improvements that qualify as “potentially relevant” are listed in the Schedule to the Green Deal (Qualifying Energy Improvements) Order 2012 and Table 6 of the Building Regulations Approved Document L2B, and are self-explanatory.
Improvements that actually have to be carried out are those potentially relevant improvements that can be wholly paid for pursuant to a Green Deal plan or “financed by such other financial arrangement as the regulations provide”.
The improvements listed in the Schedule to the 2012 Order are those that may form part of the Government’s totemic Green Deal, which ignores the inconvenient truth that, as at the date of writing (April 2015), there is no “Green Deal” for commercial properties, only residential. This gap will have to be filled somehow, and soon, as the Government’s stated policy throughout the gestation of the regulations has been to eliminate the “split incentive”, where the landlord would pay the cost of improving the energy efficiency of a property and the tenant would then enjoy lower energy bills as a result.
Under the Green Deal scheme, assuming that it is transposed wholesale from the residential arena, the cost of the improvement works would be financed by a commercial Green Deal (or equivalent) lender who would then collect the financing cost through the energy bills paid by the tenant, which are artificially increased to cover it. Crucially though, the overall amount of the tenant’s energy bill would not exceed the amount that it would have paid for energy if the improvement works had not been carried out, the so-called “no cost” improvement. If an improvement does not pass this test, the regulations do not require it to be carried out even if it means that the property remains sub-standard. This is the “Golden Rule” much heralded by the Government.
The improvements listed in Table 6 are only required to be carried out to a sub-standard property if the cost of the works would be paid back in lower energy bills within a period of 7 years, the formula for the calculation of which can be found in Regulation 28. The regulations do not explain how the split incentive is eliminated in this scenario, and maybe the draftsman assumed that a tenant will pay more rent for a property that has lower energy bills. That is likely to be a hard sell for a landlord in a difficult market.
Provided that it is registered as required by Regulation 36(2) (see below), the caveat explained above lasts for a period of 5 years from registration at which time the position has to be reassessed.
The formal exemptions from the need to comply with the regulations
The restriction on letting, or continuing to let, a sub-standard property does not apply where:-
in the preceding 5 years, the landlord has been unable to improve the energy performance indicator of the property to “E” or above due to the lack of a tenant’s or third party consent, subject to registration as referred to above (Regulation 31)
in the preceding 5 years, an independent surveyor has advised that a particular improvement would reduce the market value of the property by more than 5%, subject to registration as referred to above (Regulation 32)
A “third party consent” means the consent that is required to carry out any particular improvement and is defined in the regulations as “including in particular”:-
a tenant’s consent
the consent of any person with a charge over the landlord’s or a superior interest
the consent of a superior landlord
a planning consent under the Town and Country Planning Act 1990
a consent required as a result of the property being listed (which is odd as most listed buildings won’t be affected by the regulations as they don’t need to have an EPC in the first place), or a consent required because the property is in a Conservation Area
Use of the phrase “including in particular” suggests that other consents that might be required and are not forthcoming will also give rise to an exemption, and each one will need to be assessed on its merits.
There is a separate temporary exemption whereby compliance can be delayed for the period of 6 months immediately following the grant of a renewal lease under the Landlord and Tenant Act 1954 or the purchase of a property subject to an existing tenancy, subject to registration as referred to above (Regulation 33).
The obvious purpose of the exemptions is to seek to minimise the number of lettable properties effectively taken out of circulation by the regulations in 2018 if they do not achieve an asset rating of “E” and, even though each exemption only lasts for 5 years, it is worth bearing in mind that the exemption might still apply or that a different exemption might be immediately available on expiry of that initial period.
Registration of the caveat and/or an exemption
Those wishing to take advantage of the caveat or an exemption will need to register their entitlement to it on the “PRS Exemptions Register” in accordance with Regulation 36(2). The contents of the register will not be vetted or verified by the enforcement agency (the trading standards department of the relevant local authority), but a landlord must make a formal statement that it holds documents that contain the evidence that entitle it to an exemption, and can be required to produce them on request by an enforcement officer.
The register will be open to public inspection and will therefore potentially create real difficulties for landlords such that they might not take advantage of an exemption to which they are entitled. In particular, they can be required to register a copy of the lease, which will undoubtedly contain confidential and commercially sensitive information, if they claim an exemption or are asked to show that their compliance derives from the fact that the tenancy of a sub-standard property predates 1st April 2018.
To demonstrate that all relevant energy efficiency improvements have been carried out (or that none that comply with the Golden Rule can be carried out) to a sub-standard property, a landlord will need to have an independent assessment of the property carried out and obtain 3 quotes for the improvements identified as “potentially relevant”. If challenged by an enforcement officer, the assessment and quotes will have to be uploaded to the register.
Penalties for non-compliance with the regulations
Penalties for breach of the regulations differ depending on when the breach comes to the attention of the enforcement agency. If the “penalty notice” is served when the landlord has been in breach for less than 3 months, the financial penalty cannot exceed the greater of (a) £5,000, and (b) 10% of the rateable value of the property, subject to an absolute limit of £50,000. If the breach has been continuing for 3 months or more, the corresponding numbers are, respectively £10,000, 20%, and £150,000. Appeals against these penalties and their amounts are possible.
In addition to the possible financial penalty, a “publication penalty” can be imposed on a corporate, but not an individual, landlord whereby the landlord is named and shamed as a defaulter on the PRS Exemptions Register.
Points to consider
Compliance will statutorily be the responsibility of the landlord (or intermediate landlord in the case of an undertenancy), not the tenant, but could be passed down to a tenant if it agreed to accept the obligation. Be aware though that, even if compliance is passed down contractually, any penalty for non-compliance will still land on the landlord’s desk so appropriate indemnities will be required in the lease.
If they do not expect to be entitled, or do not want, to claim an exemption, landlords have from now until 31st March 2018, or possibly until 31st March 2023, to bring a sub-standard property up to scratch. If there is an existing lease, they can either attempt to pass the liability or cost down to their tenant (possibly through a service charge) if their lease allows them to do so, or meet the cost themselves. In either case, they will need to check their leases to ascertain whether they need the tenant’s consent to carry out the necessary improvement works.
In the period up to 1st April 2018, landlords of properties with a low EPC rating that are either currently vacant or will be vacant before the deadline have to decide what to do and how to comply with the regulations, whether that be by carrying out improvement works or claiming an exemption. Landlords with tenants of leases extending beyond 1st April 2023 have more time to make the same decisions but, for all landlords of sub-standard properties, doing nothing is not an option in the medium term.
Landlords and Property Owners in England & Wales are required to provide Energy Performance Certificates (EPC’s) to any prospective buyer or tenant when they lease, build or sell a Residential or Commercial Property. An EPC is also now a requirement for all dwellings at the construction stage.
All Residential and Commercial Properties for Sale or Rent will need to be examined and given an EPC. This rates the building’s energy efficiency on a scale from A to G and will show where the rating could be after a few improvements. This will assist in reducing CO² emissions.
Energy Performance Certificates tell you how energy efficient a home is on a scale of A-G. The most efficient homes which should have the lowest fuel bills are in band A.
The EPC is valid for 10 years and must be in place before the property goes to market. If any changes to the thermal elements are carried out within that time a new report or an updated epc will be required.
Energy Performance CertificateEPCs explained: If you’re selling or renting your home out, you need to make sure your home has an Energy Performance Certificate (EPC).
How much energy does your home use? Is it energy efficient? Are you eligible for certain benefit owing to a greener lifestyle?
These are the sorts of questions an energy performance certificate, or EPC, is there to answer. An EPC gives you a score relating to how much carbon you generate.
Energy Performance Certificate
By law, all buildings that have been newly built, sold or rented out need an Energy Performance Certificate.
Likewise, if you’re buying or renting a property, you need to make sure you look at the Energy Performance Certificate.
The EPC, which is valid for 10 years, will give you an idea of how expensive the property will be to run, in terms of your gas and electricity bills.
It’s good to know as much as possible about your new home’s energy efficiency before you move in – it will give you a good idea the amount of money you might need to spend on the house in future, whether it’s on energy-efficient measures or on your energy bills.
It is worth noting that the EPC is sometimes mistakenly referred to as the ‘EPC Certificate’, a term which efftively translates to the ‘Energy Performance Certificate Certificate!’
What is an Energy Performance Certificate?
Energy Performance Certificates look similar to the EU Energy Labels you see on electrical appliances, such as fridges and washing machines.
Essentially, Energy Performance Certificates are a list of statistics about the energy efficiency of your home. They also have recommendations on where you could make improvements.
EPCs carry ratings on energy use and carbon dioxide emissions. Two readings are given – one states the level of efficiency that your home is currently achieving, the other suggests what level of efficiency your home could be achieving if you were to put energy-efficient measures in place.
Energy Performance Certificate (EPC): how does it work?
To simplify things the EPC is done on a sliding rating scale providing summarised ‘at a glance’ information about the energy efficiency of your home. The rating scale is colour coded and alphabetised, running from A to G:
A (Dark green) is highly efficient
G (Red) is low efficiency
Most homes appear around grade D, this is the average.
What other information does the certificate contain?
While EPCs are known by the rating scale, and the relative financial implications of that scale when it comes to selling your home, it also contains plenty of other information designed to help you make your home ‘greener’. This information includes:
estimates of the energy your property potentially uses;
carbon dioxide emissions;
details of the person who carried out the assessment;
who to contact for complaints.
Using this information you can assess the impact of energy-saving upgrades you make when you have your home reassessed later on. These estimates will also influence your eligibility for support and payments, including the ‘Feed-in Tariff’ payments.
What if you’re selling your property?
The recommendations are only a guide, so there are no legal obligations to make the changes that the report recommends. If you do make the changes, you will improve your home’s energy rating and therefore make the property more attractive to buyers.
Energy performance certificate
Bear in mind that a better energy performance rating is likely to appeal to prospective buyers. Not only does this show your home is cheaper to run than a house of comparable size with a higher rating, but in an era of rising energy prices this is likely to have a greater and greater impact.
What’s more most savvy buyers will know the financial implications of buying a home with a lower EPC rating. In future it’s possible that taxes and benefits will be increasingly tied to a home’s EPC, making the cost of reducing the carbon emissions of a home a cost factor that should be considered when buying.