New legislation passed in 2015 means that a Minimum Energy Efficiency Standard (MEES) will be imposed on both domestic and non-domestic properties, in the Private Rental Sector (PRS) in England and Wales as of the 1st April 2018.
Under the changes if you are a landlord and provide tenancies of longer than 6 months, but shorter than 99 years, your property may be directly impacted by the MEES regulations. Compliance of properties will be measured through an Energy Performance Certificate (EPC) rating, with the minimum rating outlined as an 'E'.
What is an Energy Performance Certificate (EPC)?
EPC's first came into existence as part of the Home Information Pack on 1st August 2007. The purpose of the EPC is to show the buyer/tenant the energy efficiency and environmental impact of the property.
The certificate will give a rating between A (most efficient) to G (least efficient) on both the energy efficiency - which covers such aspects as the heating system and insulation, and environmental impacts - which relates to the carbon dioxide emissions of the property. It also contains advice on how to cut fuel bills and reduce emissions, as well as providing details of any Green Deal grants serving the property.
It is important to note that an EPC is valid for 10 years, meaning you do not necessarily have to obtain a new certificate if there is already a valid one in existence.
How do the changes affect properties?
It is currently estimated that 25% of domestic properties and 20% of non-domestic properties in England and Wales will be non-compliant when the Regulations come into force.
As a landlord, if you do not make the required improvements to increase the EPC rating of your property to at least an E, you will not legally be allowed to let the property, and can face fines as of 1st April 2018.
The fines are up to £5000 for domestic properties, and up to £150,000 for non-domestic properties.
Are there any exemptions to MEES?
EPC's are not required on lease renewals, therefore not included under the new legislation.
Certain types of property can apply for a five year exemption in respect of MEES, however all require an official exemption document to be issued by a qualified professional. The exemptions are:
- Devaluation
The required Energy Conservation Measures (ECMs) will either cause damage or reduce the value of the property by 5% or more.
- Consent
It is not possible to gain the consent for the works to be completed from the tenant, lender or superior landlord.
- Cost
The identified improvement measures are not cost-effective, either within a seven year payback, or under the Green Deal's Golden Rule.
- The property is due to be demolished
- Listed buildings
The position remains unclear with listed buildings, as the wording of the legislation is ambiguous. It could be argued that "compliance with certain MEES would unacceptably alter the character and appearance of the property" of a listed building.
It is very difficult to identify the benchmark by which to judge whether compliance would unacceptably alter the character or appearance. The government are aware of the confusion with the phrasing, but have chosen not to clarify further at this point.
In cases of uncertainty with listed buildings, the landlord can choose to seek advice from their agent, the relevant listed building officer, or pay for a qualified Energy Performance Assessor to commission a report on the property.
Conclusion
The solicitor/conveyancer acting in relation to the sale/lease of the property will be able to provide information and options regarding whether an EPC is required, however they will not be able to advise on this particular aspect of the transaction.
As EPC's first came into existence in August 2007, they will now start to expire. This means that solicitors/conveyancers will need to check the date to ensure that they are in possession of a valid certificate as part of the transaction. A failure to produce a valid EPC can result in enforcement action by Trading Standards.
As it is also likely that lenders will amend their mortgage conditions to incorporate the new legislation, solicitors and conveyancers alike will need to ensure they are carefully checking the EPC against the lender's requirements on every transaction.
It is important to note that all properties caught by the Regulations (not just those offered for sale of letting) must have a rating of E or above. For domestic properties this takes effect from 1st April 2020. For non-domestic properties this takes effect from 1 April 2023.
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