Published: 18 July 2017
Area of Law: Real Estate
New energy efficiency requirements for landlords
Under the Energy Efficiency Regulations 2015, from 1 April 2018 all tenanted properties with a new lease must have an energy performance certificate (EPC) rating of at least “E”. The requirement will apply to all domestic tenanted properties (including properties with an existing tenancy) from 1 April 2020 and all non-domestic properties from 1 April 2023. There is evidence that funders for acquisitions of these properties are also taking the new requirements into account in making their funding decisions.
Research from Landmark Information Group (2014) showed that 19% of EPCs in England and Wales are F or G rated. This is backed up by research by Property Week (2016) which found that 43% of property firms had not yet assessed the impact of the new Minimum Energy Efficiency Standards (MEES) on their portfolios. Failure to comply with the regulations could result in severe fines.
Cases where an EPC is not required
There are certain cases where an EPC is not required. These include buildings that are environmentally protected or have special architectural or historic merit, places of worship, temporary buildings, industrial sites, workshops, certain agricultural buildings and small detached buildings.
The ruling also doesn’t apply where a landlord has made all the “relevant energy efficiency improvements” to the property that can be made (or there are none that can be made). Exemptions also apply if a property qualifies for improvements under the Green Deal or where energy efficiency improvements have a payback period of seven years or less and includes measures such as upgrading older heating and cooling systems and replacing windows.
There is a further exemption where a landlord is unable to improve the energy efficiency rating of the property because they could not obtain a necessary consent. Examples of consents that may be required include consent from a superior landlord, mortgagee or planning or other statutory consent. However, where other improvements could be carried out which do not require such consent, this will not be a valid excuse for non-compliance. Landlords are required to use reasonable efforts to obtain consent.
For companies in the energy efficiency and renewable energy industries, the introduction of this legislation offers opportunities for new business helping landlords meet these requirements. Many energy sector businesses have been hard hit by the withdrawal of funding for energy efficiency programmes such as the Green Deal and the reduction of subsidy levels in renewable energy incentive programmes such as feed-in tariffs.
Landlords of properties with a low-grade EPC (F or G rating) need to consider measures which should be taken to upgrade the EPC rating of the property. Landlords will obviously need to check their leases to see whether consents to improvements are required and whether the costs can be passed on to tenants through service charge provisions.