On 26 March, The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 brought into force the minimum energy efficiency standard (MEES), introduced by the UK government to meet its obligations under the Energy Act 2011. This is a significant step forward in the drive to make the country’s buildings more energy efficient and to reduce carbon emissions from the property sector.
From 1 April 2018, a landlord will be unable to let an F or G Energy Performance Certificate (EPC) rated property (known as a sub-standard property). The regulations not only apply to lease renewals (where an EPC exists), but also to sub-lettings, capturing tenants who wish to dispose of unwanted space.
From 1 April 2020, the regulations become more onerous by applying to all property leases (where an EPC exists). Initially, the regulations apply to landlords of domestic properties but from 2023, landlords of non-domestic properties must also comply.
Exemptions
Some F and G rated properties fall outside of the scope of MEES, including those that are not required to have an EPC under the Energy Performance of Buildings Regulations 2012, for example, listed buildings. In addition, properties with a short lease (defined as less than six months) or with a long lease (greater than 99 years) are excluded.
Exemptions arise when a landlord has completed all cost effective improvements works that have a simple payback period of seven years. A landlord is also exempt where a third party will not grant consent for the improvement works, for example from the planning authority, lender, superior landlords, etc. Finally, a landlord is exempt if an independent surveyor determines that the energy efficiency improvements would devalue the property by more than 5 per cent.
Exemptions last for five years and, to qualify, a landlord must register the property on the public Private Rented Sector (PRS) Exemptions Register, stating the reasons in the entry.
Non-compliance penalties
The penalties for non-compliance are significant, ranging from £2,000- £150,000, based on the rateable value of property.
What to do?
It is important to assess the risk, identifying any properties that currently have an E, F or G rating. This must include verifying the accuracy of the existing EPCs, as variations in assessments can lead to incorrect ratings. Close attention must be paid to certificates produced shortly after EPCs were introduced in 2008 or where there is a reliance on default settings in the calculation of the rating.
This is particularly important for landlords with domestic properties in their portfolios, because the regulations’ teeth start to bite from 1 April 2020, shortly after the EPCs prepared in 2008-2009 become invalid. Under Part L of the Building Regulations if certain alterations are undertaken (such as an extension or works to the services) the property must be recertified.
Once the potentially at risk properties have been identified, landlords need to develop a plan of improvements in order to minimise costs and determine what works can be undertaken as part of regular maintenance and refurbishment works. Quite often a rating will be improved by merely carrying out cyclical or planned replacement works at little or no additional cost. In fact, in our experience simply remodelling a property using accurate data can improve the rating without executing any works.
Collaboration with occupiers is essential because it is unlikely that the leases will include provisions for landlords to carry out energy efficiency improvement works in tenanted areas. It is also important that landlords maintain good relationships with their tenants and discuss proposals with them well in advance of any works starting.
When landlords enter into new leases (or renew existing ones) they should consider the inclusion of green lease provisions or attaching a memorandum of understanding to provide flexibility and a framework for collaboration. In addition, it is important that landlords pay closer attention to their tenants’ fit-out proposals to make sure that they do not have a detrimental effect on a property’s EPCs.
When evaluating works, consider whether they will have any impact on the value of the property and what consents are needed. It could be that an F or G rated property is exempt and if it is, a landlord must ensure that property is listed on the PRS Exemptions Register, noting that any false or misleading information could incur a penalty.
If there are any concerns about funding improvements works, a Green Deal provider or an alternative funder may be able to help. There are an increasing number of funders specialising in energy efficiency retrofitting.
Finally, when completing due diligence, it is important to make sure that the EPC is reviewed to determine whether the property could be at risk. Where this is the case, determine the cost and timing of the improvement works. This information can be useful for prospective purchasers when re-evaluating their investment appraisals and/or negotiating a purchase price. For occupiers, they should consider if compliance with MEES might constrain any future plans to sub-let part of the space.
How can building surveyors help?
Building surveyors have a good breadth of relevant and complementary expertise covering both the technical and non-technical aspects of property and construction. They are particularly knowledgeable in assessing and improving the performance of buildings - skills that are invaluable if landlords are to meet MEES requirements and to generally reduce carbon emissions from the property sector. Building surveyors can assist in a number of ways:
About the author
Mat Lown is a Chartered Building Surveyor, Partner and Head of Sustainability at Tuffin Ferraby Taylor
You can follow Mat on Twitter: @matlown
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