The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 make it unlawful from April 2018 to let residential or commercial properties with an Energy Performance Certificate (EPC) rating of F or G, the lowest 2 grades of energy efficiency.
The new regulations have significant implications for property owners who wish to lease commercial and residential properties and for occupiers of existing properties who choose to assign or sublet surplus space making it impossible to market some properties unless they are upgraded to meet the minimum standards. Property owners and occupiers need to take immediate action to avoid penalties and to protect the value of their assets.
From 1 April 2018, landlords of residential and commercial property in England or Wales must ensure that their properties reach at least the minimum energy efficiency standard set at an EPC rating of E before granting a new tenancy to new or existing tenants.
From 1 April 2020, the EPC regulations will apply to all existing residential lettings even where there has been no change in tenancy arrangements.
From 1 April 2023, the EPC regulations will then affect all non-domestic property lettings including where a lease is already in place, except for those that do not require an EPC under current regulations, such as listed buildings.
The EPC regulations also apply to sub-lettings, assignments and existing lease renewals including statutory renewals under the Landlord and Tenant 1954 Act.
Limited exemptions to the EPC Regulations apply to commercial and residential lettings, which include:
Third party consent exemption – where consent to undertake works cannot be obtained from a third party, such as a mortgage lender, superior landlord, current tenant, or a local authority planning consent.
Property devaluation exemption – where an independent surveyor registered on the RICS register provides a report that the improvements would reduce the market value of the property by more than 5%.
Temporary exemption due to recently becoming a landlord – this lasts for six months after the date of becoming a landlord and applies from that date. Limited circumstances apply to this exemption.
Further exemptions apply to commercial lettings including short lettings of 6 months or less, or lettings of 99 years or more. Additional exemptions for residential lettings include financing costs and where works would damage the property.
Any exemption from the prohibition on letting will last no more than five years, cannot pass over to a new owner or landlord upon sale or other transfer of the property, and will need to be lodged on the National PRS Exemptions Register.
How will the EPC Regulations be enforced?
The residential property regulations will be enforced by Local Authorities and the commercial property regulations will be enforced by Local Weights and Measures Authorities. The penalties will be determined by the rateable value of the property, with fines up to a maximum of £150,000.
How do the EPC Regulations affect property owners?
The changes to the regulations has a significant impact on property owners, including:
The minimum energy efficiency standards make some properties illegal to let unless they are upgraded to meet the minimum standards;
Valuations of these properties could be affected if their marketability is diminished;
Rent reviews for properties could also be affected; and
Implications for dilapidations assessments may also exist.
What should property owners do?
The changes to the EPC regulations mean that property owners need to obtain an EPC as soon as they can when planning to lease or let their property.
Where the energy performance rating is within A to E then the property can be put on the market. Where the EPC rating is F or G, or is at risk of becoming so, then works will need to be done to bring the property up to a higher efficiency standard.
The EPC reports contain cost-effective recommendations on how to improve the energy efficiency of the property. Before the property can be put on the market, these recommendations will need to be implemented.
How can Farleys help?
At Farleys we can help you to identify the potential risk to your assets. For further details on the changes to the EPC regulations please contact us today to speak with one of our property solicitors on the implications of the new regulations and how this may affect you. Call 0845 287 0939 or complete our online enquiry form.