Come April Fool’s Day 2020, landlords of residential property should be aware not just of customary pranks and hoaxes, but also of the implications of the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (the “MEES Regulations“).
What is the current position for residential property?
Since 1 April 2018, landlords of “domestic private rented property” are unable to grant or renew leases without a valid EPC with a minimum rating of E.
Currently, F and G rated properties are “sub-standard” under the MEES Regulations.
The MEES Regulations do not apply to all residential property. There are excluded types of property, excluded types of landlord, qualifying types of tenancy and the property must be required to have an EPC in the first place. We have blogged previously on the residential property that is not affected.
What will change from 1 April 2020?
From and including 1 April 2020 landlords will be prohibited from continuing to let sub-standard domestic private rented property. This will apply to leases granted before or after 1 April 2018.
This is slightly different to the position for landlords of commercial property, where the prohibition on continuing to let sub-standard property will come into effect on 1 April 2023.
What options do landlords of sub-standard property have?
Before 1 April 2020, landlords of sub-standard domestic private rented property must:
- make sufficient energy improvements to the property to ensure it is no longer sub-standard; or
- make all relevant energy efficiency improvements to the property and, if the property continues to be sub-standard, register this information on the PRS Exemptions Register (or, where there are no relevant energy efficiency improvements that can be made to the property, register this information on the PRS Exemptions Register). There are qualifying criteria for what is a “relevant” improvement; or
- register an exemption under the MEES Regulations on the PRS Exemptions Register.
If either of the last two points apply, landlords can continue to let sub-standard property for a period of five years.
What are the exemptions?
The main exemptions are:
- The “high cost exemption” – the cost of purchasing and installing the cheapest recommended improvement exceeds £3,500 (inclusive of VAT). This exemption can only be used where there are no improvements that can be made for £3,500 or less.
- The “consent exemption” – a landlord can demonstrate that it has been unable to obtain necessary third party consent for any energy efficiency works.
- The “devaluation exemption” – the works would reduce the market value of the property by more than 5%.
- A “temporary exemption” – if a person becomes a landlord suddenly in a limited set of circumstances (for example, a lease is deemed by operation of law to have been created), this exemption allows a grace period of six months for the landlord either to carry out improvements so the property is no longer sub-standard or to register another valid exemption. From 1 April 2020, this exemption will also apply where a person becomes the landlord on purchasing an interest in a sub-standard property that, on the date of the purchase, was let on an existing tenancy.
Otherwise, if landlords are continuing to let sub-standard domestic private rented property, they will be in breach of the MEES regulations.
What does it mean if I’m in breach?
Whilst a lease of sub-standard domestic private rented property will continue to be valid and enforceable if it continues on or after 1 April 2020, landlords could face enforcement action by local authorities. This could lead to financial penalties and negative publicity (both of which could be damaging).
As 1 April 2020 draws closer, it is essential that residential landlords are proactive in reviewing their portfolios to identify sub-standard properties and to take appropriate action. Failure to do so will be no laughing matter.