On 5 November 2018, the government published its response to its consultation paper on amending The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (the "MEES Regulations"). The proposed changes would require residential landlords to pay up to £3,500 per property for works needed to bring the EPC rating of the property up to at least an "E".
Background: the MEES Regulations
Since 1 April 2018, landlords are not permitted to let a residential property with an EPC rating below E unless they have registered an exemption on the National PRS Exemptions Register in accordance with the MEES Regulations.
Registerable exemptions include a property devaluation exemption, whereby energy efficiency improvement works would devalue a residential landlord's property; and a wall insulation exemption, where the energy efficiency improvement works would include cavity wall insulation, external wall insulation or internal wall insulation. Registered exemptions are valid for five years and a residential landlord can re-register an exemption after five years has passed.
A further exemption is currently available for residential landlords, who do not have to make a financial contribution towards energy efficiency improvement works at their properties. Residential landlords can register an exemption if they cannot carry out energy efficiency improvement works to the property without a cost to themselves, (the "No Cost Exemption"). This exemption would change under the government's proposals.
How would the new exemption for residential landlords work?
The government had initially proposed that residential landlords would be required to contribute up to £2,500 per property towards energy improvement works. However, the latest response from the government proposes a higher contribution, of up to £3,500 (inclusive of VAT) per property from residential landlords to bring their properties up to an EPC rating of E for the grant of new tenancies to new and existing tenants. This cap would be inclusive of any third party funding obtained by residential landlords, including local authority grants, meaning that for those who receive such third party funding, the maximum amount they need to contribute themselves may be significantly less than £3,500.
Residential landlords of properties with an EPC rating below E would be required to consider all energy efficiency improvement measures, recommended in an EPC report or other energy efficiency advice report obtained for their property, and implement any recommended measures up to the value of £3,500. If, following the energy efficiency works, the EPC rating of a property was still below E, residential landlords would be able to register an exemption.
Residential landlords seeking to register this exemption would need to provide:
- evidence that £3,500 worth of recommended energy efficiency measures have already been implemented; and
- three installer quotes showing that further energy efficiency measures, to bring a property up to an EPC E rating, would exceed £3,500.
What other changes are being proposed?
The government's proposed changes to the MEES Regulations would also remove the consent exemption available to residential landlords where a tenant will not consent to Green Deal finance. Green Deal finance provides loans to owners and occupiers, including residential landlords and tenants, to pay for energy efficiency improvement works in their properties. The savings made on energy bills, following energy efficiency improvement works, are used to service the loan. 70% of respondents to the consultation paper indicated that the consent exemption should be removed to allow tenants to benefit from energy efficiency measures without entering into Green Deal finance.
What happens next?
The government anticipates that the amendments to the MEES Regulations will be enacted in 2019 and the proposed amendments will apply to existing residential tenancies from 1 April 2020. All No Cost Exemptions would then be cancelled from the National PRS Exemptions Register on 31 March 2020, irrespective of when they were registered.
The government will propose further changes to energy performance standards in the private rented sector in 2019, with the aim of upgrading as many private rented properties as possible to an EPC rating of "C" by 2030.
This article was prepared with the assistance of Adam Collins, trainee solicitor at Osborne Clarke LLP.