2018 EPC Minimum Standards Update
Our trainee Solicitor, Georgina Went discusses the upcoming changes to the EPC Minimum Standards due to take place in 2018.
It is an obligation of the Secretary of State for Energy and Climate Change following The Energy Act 2011 to bring into force by 1 April 2018 regulations which will make it unlawful to let a property in England and Wales which do not meet a prescribed minimum energy performance standard (MEPS).
Following this change in April 2018, if your property is rented out in the private rented sector it must have a minimum energy performance rating of E on an Energy Performance Certificate (EPC).
The EPC must be current and must be no more than 10 years old.
Does this include your property?
The Regulations will apply to non-domestic property, defined by the Energy Act 2011 as any property which is let on a tenancy but is not a dwelling. All commercial property types from A1 to D2 usage classes are in the scope of the regulations, unless they are excluded from existing EPC Regulations.
The Regulations will also apply to domestic property, defined in section 42 of the Energy Act 2011 as any property let under an assured tenancy for the purposes of the Housing Act 1998, or a tenancy which is a regulated tenancy for the purposes of the Rent Act 1977.
After 1 April 2018, the Regulations will apply to you when you:
Grant a new tenancy to a new tenant; and
Grant a new tenancy to an existing tenant.
After 1 April 2020, the Regulations will apply to all privately rented property within the scope of the Regulations and so it will also affect your existing tenancies.
The Government have proposed several instances where a Landlord will be legally able to still let a property with an EPC rating below E, to include:
If all improvements have been carried out by the Landlord, of which have no upfront cost consequences and the EPC rating still falls below E;
If there are improvements which could have been made but have not been because they would not pay for themselves though energy savings within seven years;
If the Landlord has attempted to carry out improvement work on the property but has been unable to obtain third party consent from a tenant, Landlord, Planning authority, higher landlord or freeholder; and
If the Landlord carrying out energy efficiency improvements will negatively affect the value of the property.
The Government is proposing that these exemptions last for five years only, or if a tenant vacates the premises and the exemption was granted because of consent refusal of that tenant.
Consequences of breach
It will be unlawful to rent out a property which breaches this requirement and Local Authorities will enforce compliance with the regulations and will have powers to impose civil penalties.
Providing false or misleading information to the PRS Exemptions Register – £1,000
Failure to comply with a compliance notice from a local authority- £2,000
Renting out a non- compliant property – < 3 months will incur a £2,000 fixed penalty and > 3 months will incur a fixed penalty of £4,000.
Please note, where a property is let in breach of these regulations, the Lease remains valid, in force and rent is still payable.
Impact on Landlords
The main impact these regulations will have on Landlords is the cost of upgrading non-compliant properties and the potential loss of income should a property no longer be legally let.
Impact on freehold investors and developers
Due to the threat of reduction in value which is posed by these regulations, it is likely that freehold investors will struggle to find new tenant landlords who are willing to sub-let a property if it means that they will be responsible for costly improvement works.
Why the change?
The UK has carbon reduction targets to meet for 2020 and 2050 and the built environment has been identified as one of the major contributors to Greenhouse Gas emissions. The Government has released estimates that 18 per cent of commercial properties hold the lowest EPC ratings of F or G. This statistic outlines the reason why the Government believe that it is pertinent to begin these changes, specifically targeting older buildings within the UK.
As the UK become more focused on energy efficiency, it is very possible that the minimum standard could rise even further in the future.
In order to reduce the impact, consequences and potential further costs these regulations could cause you as a Landlord, it is essential that you are prepared for this change well in advance. We suggest that you identify at this stage which properties in your remit will fall within the scope of the regulations, carry out energy assessments to check the EPC ratings and consider the timetable of the regulations in conjunction with the terms of your lease to prevent any unnecessary costs.