As from the 1st April 2018 there will be a requirement for any properties rented out in the private rented sector to normally have a minimum energy performance rating of E on an Energy Performance Certificate (EPC). The regulations will come into force for new lets and renewals of tenancies with effect from 1st April 2018 and for all existing tenancies on 1st April 2020. It will be unlawful to rent a property which breaches the requirement for a minimum E rating, unless there is an applicable exemption. A civil penalty of up to £4,000 will be imposed for breaches. This guidance summarises the regulations. There are separate regulations effective from 1st April 2016 under which a tenant can apply for consent to carry out energy efficiency improvements in privately rented properties. Click here for this Guide.
The Regulations apply to domestic private rented sector properties in England and Wales. This means:
Properties let under an assured tenancy or a shorthold.
A tenancy which is a regulated tenancy for the purposes of the Rent Acts.
(a) On a tenancy which is an assured agricultural occupancy
(b) On a protected tenancy under the Rent Act 1976
(c) On a statutory tenancy under that Act.
Need for an EPC
Properties within scope will include any domestic privately rented property which: has an EPC, and is either (i) required to have an EPC; or (ii) is within a larger unit which itself is required to have an EPC, either at point of sale, or point of let. No changes are made to existing regulations regarding the provision of EPCs.
Flats and houses are subject to the regulations. In the case of flats this means self-contained unit. Non self-contained units such as bedsits do not require an individual EPC.
If a property does not have an EPC then the regulations do not apply.
If a bedsit is within a property that does have an EPC then the Regulations will need to be complied with before the bedsit can be rented out. Although as such bedsits do not need an EPC if the house containing the bedsit has been sold for example it will have an EPC in which case the Regulations will apply.
The EPC must be the current EPC if there is one and this must be no more than 10 years old.
Improvements which can be required
Improvement work which can be required is any energy efficiency improvement work which qualifies for Green Deal for the installation of gas for an off gas property so long as the mains are within 23 metres from the property.
Prohibition on letting
A domestic private rented sector property is substandard if the EPC rating is F or G, unless an exemption applies. The legislation prohibits a landlord from letting out a substandard property. If there is an EPC in place which shows that the property is an F or G then it must not be let; otherwise the landlord is liable to penalties. This is subject to any available exemptions. Energy efficiency improvements must be carried out to bring the property up to an E rating at the minimum, unless one of the exemptions is applicable. In particular, if the work cannot be carried out so as to meet the Green Deal Golden Rule then there is potentially an exemption. Under the Golden Rule there should be no upfront costs (or any net cost to the landlord) because savings resulting from the works should repay their cost over the expected lifetime of the works.
If a landlord lets and continues to let the property in breach of the regulations, however, the breach does not affect the validity or legality of the tenancy itself, so the rent still continues to be payable.
Exemptions, restrictions on making improvements
Only appropriate, permissible and cost-effective improvements are required under the regulations. Landlords will be eligible for an exemption from reaching the minimum standard where they can provide evidence that one of the following applies:
- They have undertaken those improvements that are cost-effective but remain below an E EPC rating. Cost-effective measures are those improvements that are capable of being installed within the Green Deal’s Golden Rule. This ensures that landlords will not face upfront or net costs for the improvement works.
- They are unable to install those improvements that are cost-effective without upfront costs because the funding entails Green Deal Finance, and they or their tenant fail the relevant credit checks.
- The landlord is required by a contractual or legislative obligation to obtain a third party’s consent or permission to undertake relevant improvements relating to the minimum standard, and such consent was denied, or was provided with unreasonable conditions.
- The landlord requires consent, and the occupying tenant withholds that consent.
- Measures required to improve the property are evidenced by a suitably qualified independent surveyor, for example from the Royal Institution of Chartered Surveyors (RICS), as expected to cause a capital devaluation of the property of more than 5%. Only those measures that are expected to cause such devaluation would be exempt from installation.
- There will be no requirement to install wall insulation under the regulations where the landlord has obtained a written opinion, from a suitably qualified person or from the independent installer engaged to install the measure, advising that it is not an appropriate improvement due to its potential negative impact on the fabric or structure of the property (or the building of which it is part).
From 1 April 2018, the regulations will apply on the granting of:
A new tenancy to a new tenant, and
A new tenancy to an existing tenant, i.e. any extension or renewal to an existing tenant. This includes a statutory periodic tenancy which comes into existence at the end of the fixed term shorthold.
From 1 April 2020, the regulations will apply to all privately rented property in scope of the regulations.
Where a lease is granted involuntarily by a landlord, for instance due to operation of law, they may be provided with six months to comply after the tenancy is agreed. Similarly, where a non-compliant property occupied by a tenant is sold, or is transferred to a lender in the event of landlord’s default (e.g. if a receiver is appointed), the new landlord will have six months to improve the property, or seek to demonstrate an exemption applies.
Note: the Regulations actually come into force on 1st October 2016. This is purely for the purpose of allowing landlords to claim exemptions early so that they had their exemption claim in place prior to implementation on 1st April 2018.
Local authorities will enforce compliance with the regulations.
Where a landlord considers an exemption applies allowing them to let their property below the minimum energy efficiency standard, the landlord will need to provide such evidence to a centralised register, the “PRS Exemptions Register”. Landlords may be required to submit relevant evidence and details of their exemption to the Register. The Government may use this information to assist local authorities in targeting their enforcement activity.
Compliance Notices and Penalties
Where a local authority suspects that a landlord with a property in scope of the regulations is not compliant, or has not sufficiently proved an exemption, the local authority can serve a compliance notice on the landlord requesting further information it considers necessary to confirm compliance. If it is not provided, or is provided and is not sufficient to provide compliance, the local authority may proceed to issuing a penalty notice.
Penalties for a single offence may be cumulative, up to a maximum of £5,000. Further penalties may be awarded for non-compliance with the original penalty notice where a landlord continues to rent out a non-compliant property; however, penalties would be cumulative up to a maximum of £5,000. The landlord can be awarded a further penalty if either the tenant changes or the regulatory backstop comes into effect
The penalty regime for non compliance with the regulations will be as follows:
Providing false or misleading information to the PRS Exemptions Register – £1,000 Publication of non compliance
Failure to comply with a compliance notice from a local authority – £2,000 Publication of non compliance
Renting out a non-compliant property – £2,000 fixed penalty for less than 3 months non compliance or £4,000 fixed penalty for 3 months or more of non compliance
NB: The penalty amounts are fixed and do not vary according to the severity of the contravention.
Upon receiving a penalty notice from a local authority, a landlord may request a review of the local authority’s decision to serve the notice. If a landlord requests a review, the local authority must consider any representations made by the landlord and all other circumstances of the case, decide on whether to confirm the penalty charge notice, and give notice of their decision to the landlord. If the local authority is not satisfied that the landlord committed the breach specified in the notice, or given the circumstances of the case it was not appropriate for a penalty charge notice to be served, they must withdraw the penalty notice. If the local authority is still satisfied that the landlord committed the breach, but the landlord still believes the penalty notice is incorrect, the landlord may proceed to the appeals process.
Landlords may appeal any penalty notice on the basis that the penalty notice was issued in error (error of law or fact), the penalty does not comply with the Regulations, or that it was inappropriate in the circumstances for the penalty notice to have been served. The appeal would be heard at the First Tier Tribunal (General Regulatory Chamber).
Status of the Green Deal Finance Company
The government has now stopped funding the Green Deal Finance Company. Green Deal Plans are only available if providers are supplying the funding without government assistance. A replacement fund has been promised but it is not expected until 2017 at the earliest and details are limited on it at this time.
Green Deal assessments are still available from providers and ECO will continue to run until March 2017.