In 2016, The Energy Efficiency (Private Rented Property)(England and Wales) Regulations 2015 established the new Minimum Energy Efficiency Standards (MEES) in the residential and commercial private rented sector.
This has been introduced by government to improve the quality of private rented buildings and reduce the overall CO2 emissions in accordance with the UKs targets for decarbonisation. From 1st April 2018, phase one of the MEES regulations came into force which has big implications for landlords of private rented property. As a result of this, it is now deemed unlawful to let properties with an Energy Performance Certificate (EPC) rating below an ‘E’ rating.
MHCLG previously highlighted the scale of those affected by MEES, with 20%-25% of residential and commercial properties in England and Wales hitting or falling below the minimum standards. There is also a chance that the standard could be raised further to a D rating by 2025 and a C rating by 2030.
What does this mean for Domestic/Residential Landlords?
From the 1st April 2018 all private rented properties must achieve an energy efficiency rating of at least an E on their EPC, to meet the minimum standards. This will initially applied only upon the granting of a new tenancy to a new or existing tenant however from 1st April 2020 this now applies to ALL TENANCIES
Landlords will need to take action to avoid any non-compliance penalties (estimated at £5000) and protect the value of their assets. If a property does not meet the minimum standards, it will be deemed unlawful for landlords to market or let a property and leave themselves exposed if a continuing tenancy does not meet the minimum standards.
Landlords self funding and cost cap- April 2019 (Domestic only)
Following an amendment to MEES regulations, from 1st April 2019, the ‘no cost to the landlord’ provision will no longer be available. As a result of this landlords will not be able to register a ‘no cost to landlord’ exemption, which was previously registered by those who were unable to make improvements to their property without incurring a cost. This means that domestic landlords must use their own funding to cover the cost of improving their property to EPC band E. This requirement is subject to a spending cap of £3,500 (inclusive of VAT) for each property and is only necessary when third party funding is unavailable.
Those who have already registered for the ‘no cost to landlord’ exemption prior to regulation changes (1st April 2019), will no longer be exempt for five years, and will now need to make the necessary improvements to their property to ensure it meets EPC band E (or as close as possible) by April 2020.
About the cost/spending cap
The £3,500 (incl VAT) cost/spending cap applies to the overall cost of improving the property and is not a cap applied to individual measures. Landlords only need to fund what they need, to improve the property to Band E. The spending cap is not a requirement and analysis shows that the average cost of improving a property from EPC band F or G to band E, would be much less than this.
In cases where a landlord is unable to improve their property to band E within the £3,500 cap, then they should install all measures which can be installed up to the £3,500 cap, and then register an exemption on the basis that ‘all relevant improvements have been installed and the property remains below an E’ Possible third party funding is available but on a very limited basis.