How can landlords comply with the upcoming minimum energy efficiency standards requirements?

Owning substandard property:

If the EPC rating is below E (a substandard property), The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (the MEES Regulations) will make it unlawful to grant a new tenancy on or after 1 April 2018 unless an exemption applies. If the property is already let, then it must be assessed so that there is no breach of the prohibition on continuing to let a substandard property after 1 April 2020 (domestic) or 1 April 2023 (non-domestic).

The EPC was carried out in 2011 and gives a rating of F. What should be done?
First, it is important to find out if the EPC rating is accurate. It is estimated that around 70% of EPC ratings are incorrect. EPCs are valid for 10 years and changes that have been made to the property since the last assessment can affect the rating. Property managers should seek professional advice and make sure assessments are up to date.

Not only will it be difficult to let a property that is rated F or G, it could also be more challenging to sell or let the property unless it is improved. A low EPC rating could also have a significant impact on the value of the property and the willingness of lenders to provide finance.

How to improve the property to meet the required standard?

There are some quick wins to improve a property’s energy efficiency rating by one or two grades. Improving insulation levels throughout the building can be a cost-effective means of upgrading the EPC rating.
Significant improvements can also be made by installing more efficient heating and lighting systems, along with their controls. Other measures to consider include renewable technologies. When all these possibilities are taken into account, a wide range of businesses stand to benefit from the new regulations. Ultimately, the degree of improvement needed will likely determine the scale of the work required.

If a property has a rating of E or above, does anything need to be done?

Since 1 April 2016, landlords of domestic properties have been unable to unreasonably refuse consent to a tenant’s request to carry out energy efficiency improvements. The MEES Regulations set out the criteria that must be satisfied to be an “energy efficiency improvement”. Most importantly for landlords, works can only qualify if they can be financed at no cost to the landlord. The MEES Regulations prescribe the steps that landlords must follow if the tenant makes a request. This being said, many property managers might take this opportunity to significantly renovate their property and “future-proof” it.

When can a substandard property be let without breaching the MEES Regulations?

A substandard property can be let if all relevant energy efficiency improvements have been undertaken, or there are no relevant energy efficiency improvements that could be made. The definition of “relevant energy efficiency improvement” differs between domestic and non-domestic properties. There is a list of improvements that fall within the definition but works to domestic properties will not qualify unless they can be financed at no cost to the landlord. The test for non-domestic properties requires landlords to spend money, but only if the works can achieve a simple payback of seven years or less.

In addition, various exemptions are available. For example, a landlord may be able to rely on an exemption if third party consent is needed in order to carry out the works, and this cannot be obtained. An exemption may also be available if the works required would result in a reduction in the market value of the property.

What happens if the MEES Regulations are breached?

Although letting a substandard property in breach of the MEES Regulations will not affect the validity of the tenancy agreement, it could lead to a substantial financial penalty. Fines of up to £150,000 could be imposed for letting a non-domestic property in breach of the MEES Regulations. There is also a “naming and shaming” element to the penalty so the landlord could suffer significant reputational damage.

The MEES Regulations are complex, and whether or not a letting will benefit from an exemption can be difficult to determine. Expert advice before letting a property can therefore be very beneficial. Investors, architects, contractors, consultants and engineers should therefore all consider the options available to them.

You can find out more about the regulations at www.tltsolicitors.com/MEES

Maria Connolly is head of real estate at TLT, Alexandra Holsgrove-Jones is senior professional support lawyer at TLT, Alan Jones works for E.ON Energy Installation Services Limited.