LANDLORDS BEWARE – do any of your rented properties have an Energy Performance Certificate rating of F or G? If so, you’ll need to upgrade the properties by April 2018 if you are to relet them. The new Minimum Energy Efficiency Standards (MEES) come into effect in April 2018 which require rented properties (residential and commercial) to have a minimum EPC rating of E. Moores manage predominantly residential professional lettings, but landlords with commercial properties should also take note of this editorial.
From April 2018, where a property has a rating below E, landlords will not be legally allowed to relet the property. The MEES rules will initially apply to new tenancies and to renewals; if your tenant has been in for 6 months or more prior to April 2018 and they wish to stay in the property they can do so with the existing F or G rating, but you must not formally renew the tenancy otherwise you will need to upgrade the accommodation. From April 2020, all tenancies will come under the MEES rules – new and existing. Upgrading properties whilst the tenant is in residence may prove problematic in some cases. A huge number of people are going to be affected by this legislation. Ignoring it would be unwise; the penalty for renting a property that this is below an E rating will be up to £4000. This will be a civil penalty.
Concerns have been voiced from the landlord community national about funding improvements to upgrade the EPC standards. It has been suggested that increased rents will be required to help cover these costs initially. Clearly this will be a move unpopular with tenants, especially as it is likely to occur at the same time tenant’s fees are banned by Government, for which most agents are expecting rents to increase.
The Green Deal is once again available as a means of financing measures to improve the energy efficiency rating. Government ceased funding the scheme in 2015 but the Green Deal Finance Company was sold to private investors in January 2017 and recommenced financing loans back in May this year. The repayment of any loans via the Green Deal are repaid as part of the property’s energy bills, which means that the person benefiting from the improved property will make the repayments, and not the actual landlord. How much money is available and for how long the funding scheme will remain active remains to be seen.
This legislation is not a simple ‘one-off’ event. Government has made provisions in the legislation to have the lowest permissible EPC rating of E moving up to a D by 2025, and then from 2030 it will jump from a D to a C for residential properties. Landlords should therefore be planning ahead.
The properties most likely to be affected are the older, Victorian and Edwardian houses, as well as older cottages and converted flats in stone villas. In Yorkshire there are a considerable number of back to back and through terrace houses, as well as cottages, let to students and professional tenants. Upgrading may be as simple as replacing an old central heating boiler, or installing efficient LED lighting, although some properties may need solid brick or stone walls insulating (internally or externally) to achieve the necessary upgrade by 2025 or 2030. Landlords should review their rental properties. Some properties will be ‘upgradeable’ and suitable to hold long term. For others, it may be prudent to sell, utilising your annual Capital Gains allowance (and any Private Property Relief where it was your former home) with a view to purchasing more suitable long-term investment property for your pension, or to pass on to children or grandchildren. The valuation team at Moores will be happy to give you guidance on this without any obligation.
Landlords can be granted a five-year respite from compliance with minimum standards if any improvements that are cost-effective still leave the property with a rating below E, or the property remains below an E rating but the measures required would devalue the property by more than 5%. To be granted an exception, landlords will have to notify and be accepted on to the Private Rental Sector Exemptions Register, which opened in October this year. Moores can provide formal written valuations to support any application. This would only apply for 5 years however.
Some elements of the press are talking of this being a “ticking timebomb”. I’m not taking such a dramatic view. I am of the opinion that upgraded, better insulated homes will attract better tenants, who are likely to stay longer, and which will achieve higher rents. This is in the interests of both the landlord and the tenant
Finally, I should remind landlords that EPC’s are only valid for 10 years. Those commissioned in 2007 are now coming up for renewal. The parameters by which properties were assessed into the Bands A to G have changed since 2007. Some landlords may find that properties which just qualified for a Band E rating in 2007 may now be rated in Band F, or even Band G. I would strongly recommend landlords review their EPC’s sooner rather than later. Where the EPC is a few years old and the property is in Band E, it would be prudent to have a new EPC commissioned. If the new EPC shows the property is still in Band E, you will be ok for next few years but you may need to be planning and financing an upgrade to be able to let the property from 2025.