Since the introduction of Energy Performance Certificates in 2008 the UK government has made a conscious effort to make the rental sector more accountable for its emissions and look towards a greener future. Of course, recent innovations in 3D Virtual Viewings do away with the inefficiency and tediousness of commuting numerous in person property viewings, but this is far from an all-encompassing solution. However, initiative such as the energy performance certificate allow for potential tenants, and in some cases representatives of the local authority, to have a transparent evaluation of a rental’s energy efficiency. As the rental sector as a whole move towards energy efficiency knowing the shortfalls of a rental, and how it can be improved offers landlords and invaluable insight into their property, not only lowering running costs, but appealing to a generation of environmentally conscious renters.
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What Is an EPC Rating?
An Energy Performance Certificate rating or EPC, is an essential document in the renting process, being provided to prospective tenants to provide an overview of the energy efficiency of a property, estimated running costs, and arrears where the rental property could be made more energy efficient. These evaluations must take place every 10 years and be carried out by either a certified EPC assessor, or Domestic Energy Assessors.
Once the energy efficiency of the rental has been inspected it will be rated on a scale from A to G, with the latter bearing the largest impact on the environment. If the rental property being assessed manages to achieve a higher EPC rating, naturally as they will have lower energy consumption the energy bills for the tenants will be far lower, leaving landlords’ room to negotiate their rental fee to entice their ideal tenant.
The EPC rating that a property scores hinges on the amount of energy the property consumes per square meter, alongside its carbon dioxide emissions. Numerous aspects of the rental will be evaluated, taking into account the overall energy consumption of a property, with insulation, heating and water systems being accounted for.
What Are the MEES Regulations?
Implemented in April 2018, the Minimum Energy Efficiency standard, or MEES, establishes an energy efficiency threshold that rental properties must pass before they are marketed to tenants. Any property that is required to have an Energy Performance Certificate must abide by these regulations, with these measures being furthered in April 2020 to state that properties affected by the MEES will be required to have a EPC rating of “E” or above before being rented out to tenants.
As landlords are only required to have a new EPC every ten years, some concerns have been raised that whilst this does alleviate the pressure of making the property owner make radical and costly transformations to their rental, any measures taken by a landlord in the name of energy efficiency will have degraded over this time. This doesn’t only raise the question of how long an EPC rating is valid for; or rather, how long the EPC rating remains an accurate representation of the rental properties energy efficiency. Naturally with the advancements in energy efficiency measures, properties that scored highly a upon their last assessment around a decade ago can somewhat expect to achieve a lower grade, potentially meaning that not only are the landlord’s costs not really offset, simply delayed, but they could be unable to rent until the property complies with the minimum energy efficiency standards.
If a rental property fails to reach an energy efficiency rating of “E” or above, the landlord must consult the EPC to seek out the provided recommended changes to the property to help it achieve he minimum standard. Whilst the UK government initially set out to do this at no additional cost to landlords, this was short lived and as of April 2019 Landlords will largely be footing the bill.
However, the UK government has recognised the financial impact making such major adjustments to a property can bring, placing a cap on the amount a landlord must spend in an effort to make their rental property more energy efficient, but more on this later.
With this being said there are some instances in which a landlord is able to rent their property that fails to achieve this minimum energy efficiency rating, either is the rental property in question is vacant, or the landlord has successfully applied for an exemption.
What Is an MEES Exemption?
There are a number of limited conditions under which a landlord is able to continue renting their property in spite of it receiving a low energy efficiency rating, however, it is worth noting that these are by no means exploits or loopholes and will expire after only 5 years in most cases.
If a landlord wishes to apply for such exemptions to the MEES, they are required to detail the location of the property, the specific exemption being applied for and the most recent energy performance certificate for the rental property.
The first of these conditions is referred to as an “all relevant improvements made exemption.” Landlords and rental property owners are able to site this exemption if they have made all reasonable efforts to increase the energy efficiency of their property and reached the spending cap of £3,500. If after this expenditure has been contributed to making the property more efficient and the rating is still considered bellow an “E”, the landlord is not obligated to put further costs forward under this exemption. With this being said, as mentioned, this exemption is only considered valid for a period of five years; at which point the landlord must make further efforts up to this spending cap of £3,500 to once again achieve at least an EPC rating of “E”. Whilst the landlord does not always have to pay this full amount themselves, and in some cases can have this funded on their behalf, if after the initial exemption period the property is still unable to meet the minimum energy efficiency standard a second exemption can be applied for.
Upon registering for an “all relevant improvements made” exemption, a landlord must provide a copy of an EPC report, or if they didn’t consult this to make the recommended changes, any otherwise provided documents from a surveyor. The rental owner must also detail all the changes made to the property and the date on which such improvements were made.
MEES ‘High Cost’ Exemption
With the cost cap of the improvements being firmly set at £3,500 by the UK government, landlords are able to apply for a high cost exemption in the circumstance that even the cheapest measure recommended to be implemented in their rental property would exceed this financial threshold. Similarly to the “all relevant improvements made” exemption”, this high cost clause will only give landlords a further five years in which to meet a minimum of an “E” rating when evaluated. However, when making this claim, landlords must also show that they have made a distinguished effort to find suitable tradesman to carry out the recommended improvements. To this end the property owner must provide at least three quotes from different firms to conduct the cheapest recommended measure to the rental. Alongside this, written affirmation that the landlord is satisfied the measure exceeds the £3,500 spending cap must also be provided.
Wall Insulation Exemption
If after the rental property has been inspected the recommended improvements to the property exclusively comprise changes to the cavity wall, external wall or internal wall’s insulation, the landlord has grounds to apply for another exemption. However, in order for this request to be upheld the rental property owner must have first obtained an evaluation from an expert categorically stating implementing such measures would deteriorate or hinder the integrity of the properties structure.
Third Party Consent Exemptions
Additional conditions under which a landlord would be able to rent out their property with a low EPC rating is if the suggested improvements to make the rental more efficient would require prior authorisation from another party. This third party could take the form of another landlord, property owner, mortgage provider, planning department and even tenants. Simply having the implementation of these changes needing the consent of another party is not sufficient grounds for this exemption; the landlord is required to sufficiently prove that “despite their best efforts that consent cannot be obtained, or is given subject to conditions you could not reasonably comply with.”
Like most other exemptions, the third party consent is only temporary, lasting five years. However, if the landlord was unable to carry out the recommended changes because they first needed to obtain the permission of the tenant, the exemption will expire at the close of the appropriate tenancy period. With this in mind the landlord will be legally obligated to hand over any correspondence or relevant documents showing that this permission was sought from the appropriate parties.
Property Devaluation Exemption
Furthermore, if any of the recommended changes to the rental property would be likely to decrease its value by more than 5% the landlord is able to apply for a “property devaluation” exemption. However, the landlord must first be able to provide a report detailing these findings from an independent surveyor that is recognised by the Royal Institute of Chartered Surveyors (RICS). Once again this will only permit the property to be rented out for a further five years with an insufficient energy performance certificate rating; if after this time the property owner wishes to register for a concurrent exemption another evaluation from a surveyor must be carried out with renewed findings of the properties devaluation upon completion of the work.
New Landlord Exemption
It is also worth noting that if the rental property owner is new to the rental industry they may find some relief in knowing they can under certain circumstance temporarily stave off their need for a valid EPC. These landlords will not be expected to immediately address the energy efficiency of their rental property, but this will only permit them to do so for the first 6 months of their time as a landlord. If after this six months the landlord wishes to occupy the rental property with tenants, it must first meet the minimum energy efficiency standard of an “e” rating, or alternatively the landlord makes another registration for a different exemption detailed above. Before this exemption is upheld however, the rental property owner is permitted to detail not only the date on which they because the landlord of the rental property, but the circumstance under which they became the landlord also.
What Happens If Landlords Don’t Comply?
If a landlord is found to be letting out a rental property that fails to meet these minimum energy efficiency standards, without a valid exemption in place the local authority is empowered to address the issue with severe penalty for the property owner. If a local authority suspects that a landlord may be in breach of these regulation they will be issued with a compliance notice, allowing them aces to information detailing the most recent EPC, when the property was last let and information on any recent changes to the property that would improve its energy efficiency. If the landlord is found to have violated these conditions they could receive a financial penalty of up to £5,000.
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