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Legislation update - Let property and Energy Performance Certificate

Following a lengthy grace period, the Energy Act 2011 is about to come into force. From 1st April 2018, letting residential or commercial properties that have an energy performance certificate (EPC) rating of F or G, will be illegal unless an exemption is registered. 

The regulations will apply to new lets and renewals of tenancies with effect from 1st April 2018, and will roll out for all existing tenancies on 1st April 2020. If you rent out a property that breaches the requirement for a minimum ‘E’ rating, you will be breaking the law, unless there is an applicable exemption.

What is considered an exemption from the Energy Act 2011?

  • If it can be demonstrated that measures needed are not cost-effective either within a 7yr payback, or under the Green Deal Golden Rule. This ‘Golden Rule’ states that the energy savings a property makes in a 25yr period must be equal to, or more than the cost of implementing the changes in the first place. The consensus being that no one wants to install a measure that won’t pay for itself.
  • The landlord cannot obtain the consents needed to install required energy efficiency improvements despite reasonable efforts. Consent could be from tenants, lenders, a superior landlord or listed building consents.
  • A qualified and relevant expert provides written advice explaining that the measures will reduce the value of a property by 5% or more, or that the wall insulation will damage the property.

What is excluded?

  •  Any property let on a tenancy for a term of 6 months or less
  • Any property let on a tenancy for more than 99 years

What are the penalties for non-compliance of Energy Act 2011?

The penalty for renting out a property for a period of fewer than three months, in breach of the Minimum Energy Efficiency Standard (MEES) Regulations, will be equivalent to 10% of the property’s rateable value. And, this is subject to a minimum penalty of £5,000 and a maximum of £50,000. After three months, the penalty rises to 20% of the rateable value, with a minimum penalty of £10,000 and a maximum of £150,000.

Where a non-compliant property is sold, the new landlord will have 6 months to improve the property. Alternatively, they must prove an exemption applies within that 6 months.

In order to minimise your liability, it pays to be proactive, and not await potential fines before addressing the issue.

What should you do next?

  • Audit your property portfolio
  • Carry out EPCs and action changes needed to properties where appropriate
  • Review your leases – do tenants need to give permission for work to be undertaken? If so can you make adjustments that state improvements must be made where required?

 

Source: Harriet Murray Jones, Partner, Commercial Property, Harrison Clark Rickerbys Limited

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