The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 came into force on 1 April 2016, and apply to landlords of both commercial and residential property. Amanda Stubbs from Trowers and Hamblins, looks at the implications for our members.
The regulations provide that properties with an Energy Performance Certificate (EPC) rating of F or G are to be classified as “sub-standard”. Landlords must not grant a lease of sub-standard property after 1 April 2018. Furthermore, from 1 April 2020, residential landlords must not continue to let out sub-standard property. This is a two-year lead in time to allow residential landlords to take action. Commercial landlords are similarly restricted from 1 April 2023. It has been estimated that around 20% of properties fall within the “sub-standard” category.
Are all leases caught?
These do not apply to commercial leases (commercial being “not a dwelling”) granted for a term of more than 99 years or for less than six months, but all other leases of sub-standard property will be affected, unless one of the exemptions applies.
How do you qualify for an exemption?
Landlords will qualify for limited exemption (up to five years) where:
Finance for the works is not available through the Green Deal or grant funding (residential), or the improvements would not be cost-effective over a seven year period (commercial).
The tenant or superior landlord refuses to consent to the works.
Carrying out improvements would reduce the market value of the property by around 5%.
Landlords must register any exemptions on a public register maintained by the local trading standards authority.
What are the penalties for non-compliance?
For a breach for less than three months a fine of 10% of the property’s rateable value (commercial) or £2,000 (residential).
For a breach exceeding three months, 20% of the rateable value or £4,000.
There will also be reputational sanctions in the form of “naming and shaming” of non-compliant landlord.
What can you do to prepare?
Start by identifying which properties currently have an EPC, and of those, which will be classed as sub-standard. Check existing lease terms for rights to enter premises, carry out cost estimates, implement the works and recover costs. Older leases may be less flexible from a landlord’s perspective. Identify any tenant break rights and possible impacts on the timing of future lettings.
Once costed, assess whether works might dovetail with existing programmes, or whether it might be more cost effective for a tenant to carry out the improvements. Where improvements are not cost effective, or cannot be recovered from the tenant, consider whether disposal is a realistic alternative.
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