Clara Zang gives you fair prior warning of the forthcoming energy efficiency reforms
The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (SI 2015/962) (“the Regulations”) introduces new measures to improve the energy efficiency of certain private rented property in England and Wales.
- From 1 April 2018: it will be unlawful for a landlord in the private rented sector (“PRS”) to grant a new domestic tenancy or renew an existing one if the property does not have a minimum energy performance rating of ‘E’ on its Energy Performance Certificate (“EPC”), subject to prescribed exemptions.
- From 1 April 2020: it will be unlawful for a private landlord to continue to let a residential property that does not have a minimum energy performance rating of ‘E’ on the EPC, subject to prescribed exemptions.
The tenancies in scope of the above rules are defined in section 42(1)(a) of the Energy Act 2011 and the Energy Efficiency (Domestic Private Rented Property) Order 2015 (SI 2015/799) and includes assured tenancies and assured shorthold tenancies, regulated tenancies, and agricultural tenancies.
Similar provisions have been introduced in respect of non-domestic private rented properties. Private commercial landlords must not grant new tenancies after 1 April 2018 or continue to let a property after 1 April 2023 if they do not meet the minimum energy efficiency standard, subject to the prescribed exemptions.
Implications for Landlords
PRS landlords must ensure that their properties have an EPC rating of ‘E’ or above before granting new residential tenancies or renewal tenancies from 1 April 2018, or continuing to let a residential property from 1 April 2020.
An EPC is a certificate and report which sets out the energy efficiency rating of a property (from band A to G) and contains information about a property’s energy use and typical costs as well as recommendations for improving its energy efficiency. EPCs are normally valid for 10 years. If the property already has an EPC which is less than 10 years old at the relevant time with an energy efficiency rating of ‘E’ or above, the landlord may let the property and there is no need to obtain a new EPC.
If the EPC does not demonstrate an energy efficiency rating of ‘E’ or above, the landlord should carry out all “relevant energy efficiency improvements” which have been recommended for the property and can be installed at no cost to the landlord. If the energy efficiency rating remains below ‘E’ despite the improvements, the landlord may register for an exemption on the PRS Exemptions Register (see below).
Landlords are only required to make improvements to an ‘F’ or ‘G’ rated property if they can do so at no cost to themselves. Funding can be obtained from a number of sources, including: Green Deal Finance, ECO (Energy Company Obligation) Help to Heat Scheme, local authority and central government funding, other third party sources, or a combination of the above. Further information on funding can be obtained by contacting the Energy Savings Advice Service on 0300 123 1234.
Consequences of Failure to Comply
A private landlord who fails to comply with the above rules when letting a residential property will face a civil penalty of up to £4,000 if he has been in breach for three months or more, or a penalty of up to £2,000 if the breach has taken place for less than three months.
In addition to the financial penalty, the publication penalty shall apply whereby the details of the breach will be published in the national PRS Exemptions Register. A landlord served with a penalty notice has a right to request a review by the local authority and then appeal to the First-tier Tribunal.
The financial penalty in respect of commercial tenancies is significantly higher (up to £150,000).
Local authorities will be responsible for enforcing compliance with the above rules and may serve a compliance notice seeking information from a landlord if they have reason to believe that the landlord is in breach. The landlord must provide the relevant information as requested. Failure to comply with a compliance notice may result in a financial penalty of up to £2,000 and providing false or misleading information on the PRS Exemptions Register may result in a penalty of up to £1,000.
The above rules on energy efficiency standards will not apply in the following circumstances:
- Relevant Improvements: the landlord has made all of the relevant energy efficiency improvements to the property that can be made but the property remains sub-standard or no relevant improvements can be made.
- Cost Exemption: the landlord has been unable to access relevant ‘no cost’ funding to fully cover the cost of installing the recommended improvements.
- Wall Insulation: it is not appropriate, due to its potential negative impact on the fabric or structure of the property, or the building of which it forms part, for certain wall insulations to be installed.
- Third Party Consent: consent is required from a third party to carry out the energy efficiency improvements and the landlord has, within the preceding five years, been unable to obtain the relevant consent from the tenant or third parties to carry out the improvement works despite reasonable efforts to seek consent.
- Property Devaluation: the landlord has obtained a report from an independent surveyor stating that the relevant energy efficiency improvements would result in a reduction of more than 5% in the market value of the property, or of the building of which it forms part.
- Temporary Exemptions: these temporary exemptions apply where a person recently became the landlord and are set out in full in regulation 33 (e.g. where less than six months have passed since: the grant of a lease pursuant to a contractual obligation; the deemed creation of a new lease by operation of law; the landlord having been a guarantor, or a former tenant, who has exercised the right to obtain an overriding lease of a property pursuant to section 19 of the Landlord and Tenancy (Covenants) Act 1995 etc).
Landlords should register an exemption by opening a user account and providing evidence of why the exemption applies. At present, the PRS Exemptions Register is running as a pilot and landlords who wish to register an exemption should email PRSregisteraccess@beis.gov.uk.
Implications for Tenants
The new rules will primarily affect landlords rather than tenants. However, there are a number of options available for tenants who are living in substandard accommodation.
Tenant’s Request: Part 2 of the Regulations provide that tenants residing in a property with an ‘E’ rating or below may serve a notice on their landlord requesting consent to carry out relevant energy efficiency improvements to the property. The landlord cannot unreasonably refuse consent, subject to prescribed exemptions.
HHSRS: If the landlord is unwilling to grant consent to carry out the relevant works, tenants may wish to consider contacting their local environmental health department. The local authority will inspect the property and assess its condition pursuant to the Housing Health and Safety Rating System (“HHSRS”) provisions under Part 1 of the Housing Act 2004. If the property is in substandard condition, the authority will serve the landlord with an improvement notice or notice of emergency remedial action requiring them to undertake works to the property. For example, the notice may identify that there is a cold health hazard or issues relating to dampness, leaks and mould at the property.
Retaliatory Eviction: Tenants who have signed or renewed their assured shorthold tenancy after 1 October 2015 are afforded further protection by the provisions on retaliatory eviction, pursuant to section 33 of the Deregulation Act 2015. From 1 October 2018, this provision will apply to all assured shorthold tenancies.
The provisions on retaliatory eviction provides that a landlord cannot evict a tenant by serving a section 21 notice in response to a complaint about the condition of the property. The complaint must be in writing unless the tenant does not know the landlord’s address. If a landlord responds to the tenant’s complaint by serving a section 21 notice, does not provide an “adequate response” which describes the action they shall take to address the issue, or does not respond to the complaint at all, the tenant should contact their local authority and request an inspection of the property as above. The local authority will apply the HHSRS and may serve a notice on the landlord requiring improvement works or emergency remedial action to be taken. After receiving such notice, landlords must carry out the repairs identified and cannot serve a section 21 notice on the tenant for a period of six months from the service of the local authority’s notice.
The above provisions are a welcome improvement for tenants as they are designed to raise the standard of accommodation in the private rented sector and reduce energy bills. When read with the provisions on the HHSRS and retaliatory eviction, tenants are provided further protection and may have a potential defence to a claim for possession.