Government Reveals New Minimum Energy Efficiency Standards For Rented Homes

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In order to reduce greenhouse gas emissions from all buildings by at least 80% in 2050, UK buildings need to become energy efficient. New regulations targeting the rental sector have been passed and take effect from 2016.

Background

For new houses and buildings there is already a regime in place through the CRC Energy Efficiency Scheme and Climate Change Agreements. However, with the domestic private market representing 18% of housing stock with the lowest EPC ratings (F and G), this is where the real challenge lies in improving the least energy efficient properties. Through the Energy Act 2011, the Secretary of State is obliged to bring in measures to ensure energy efficiency standards in the domestic and non-domestic sector. The government has produced the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 which came into law on 26 March (the Energy Efficiency Regulations).

What is the content of the Energy Efficiency Regulations?

The Energy Efficiency Regulations contain two elements:

  • A tenant’s right to seek consent for energy efficiency improvements in relation to their domestic private rented property and a duty on the landlord not to unreasonably refuse consent (applicable from 1 April 2016)
  • Minimum energy rating standard (EPC rating E) to be fulfilled for all eligible properties before being let to tenants except where exemptions apply (applicable from 1 April 2018)

Definition of domestic private property

The Energy Efficiency Regulations apply to the domestic private rented sector in England and Wales. A property is defined as ‘domestic private rented property’ if it is let:

  • Under an assured tenancy for the purposes of the Housing Act 1988, or
  • A tenancy which is a regulated tenancy for the purposes of the Rent Act 1977,
  • Under a tenancy which is specified by an order made by the Secretary of State.

Through the Energy Efficiency (Domestic Private Rented Property) Order 2015, the following types of tenancy are added and will be within the scope of the Energy Efficiency Regulations:

  • A tenancy which is an assured agricultural occupancy (section 24 of the Housing Act 1998),
  • A protected tenancy (section 3(6) of the Rent (Agriculture) Act 1976),
  • A statutory tenancy (section 4 (6) of the Rent (Agriculture) act 1976).

What is not covered?

However it is also important to note that a property is not a domestic private rented property if:

  • It is low cost accommodation within the meaning of s.69 of the Housing and Regeneration Act and the landlord is a private registered provider of social housing,
  • It is low cost home ownership accommodation within the meaning of s.70 of that Act, or
  • The landlord is a body registered as a social landlord under Chapter I Part I of the Housing Act 1996.

In the social housing sector in order to determine whether these standards apply, it is important for a Registered Provider to consider the type of housing stock it holds, the identity of the landlord and the market in which it is operating. This is especially necessary in case the Energy Efficiency Regulations apply so that a registered provider can adequately prepare and be able to comply with the standards effectively once they come into force.

For example, if there are market rental properties being operated through a subsidiary company or joint venture vehicle the landlord for those tenants will not be the registered provider itself and so it is possible none of the exemptions will apply and those properties will be like those in the private rented sector.

Tenant’s right to seek consent for energy efficiency improvements

A tenant in exercising his/her right to seek consent for energy efficiency improvements is required to make a specific request detailing the improvement and is entitled to have a response from the landlord within one month. This relates to any property which fulfils the definition of domestic privately rented irrespective of whether the property has an EPC at the time of the request. If the property is not covered by the EPC regulations the landlord would not be required to provide consent for such improvements. The examples that are provided from the consultation refer to properties with permission for demolition or where the building is a temporary structure with an evidenced and planned time of use of less than two years. The tenant can also seek funding to cover costs of the improvements from a range of sources including; Green Deal Finance Plan, the Energy Company Obligation or other scheme, grants, as well as own sources or discretionary contribution from the landlord.

In deciding whether to grant consent, the landlord is under an obligation not to refuse unreasonably. The Energy Efficiency Regulations also specify what would be reasonable such as where the improvement falls in relevant subsections of the Green Deal (Qualifying Energy Improvements) Order 2012 and the landlord has sought a written opinion advising that such improvements would not be appropriate. If a tenant considers a landlord’s decisions to be unreasonable, this can be challenged by appeal to a Tribunal.

Minimum energy efficiency standards

The minimum energy efficiency standards (EPC rating E) are to be implemented in respect of all eligible domestic private rented sector properties. Unlike the tenant’s right to seek consent for energy efficiency improvements, the scope here is any domestic privately rented property which has an EPC and is either (i) required to have an EPC; (ii) or is within a larger unit which itself is required to have an EPC at either the point of sale, or point of let. The Energy Efficiency Regulations also contain a number of safeguards to ensure that only appropriate, permissible and cost effective improvements are required. The applicable exemptions for which landlords can be eligible include:

  • They have undertaken improvements that are cost-effective but remain below an E EPC rating. Cost-effective in this case refers to improvements that are capable of being installed within the Green Deal’s Golden Rule;
  • They are unable to install improvements that are cost effective without upfront cost because the funding entails Green Deal finance, and they or their tenant fails relevant credit checks;
  • The landlord is required by contractual or legislative obligation to seek consent from a third party for such improvements and such consent was denied or provided with unreasonable conditions;
  • The landlord requires consent from the tenant and the tenant withholds consent;
  • Measures required to improve the property are evidenced by a suitably qualified independent surveyor, as expected to cause a capital devaluation of the property of more than 5%. Only those measures that are expected to cause such devaluation are exempt; and
  • No requirement to install wall insulation where landlord has obtained a written opinion from a suitably qualified person or independent installer advising that it is not an appropriate improvement due to the potential negative impact on the fabric or structure of the property.

A landlord relying on an exemption is under an obligation to have this registered with the Private Rented Exemptions Register. The minimum energy efficiency standards will start to be applied from 1st April 2018 in relation to new tenants and new tenancies for existing tenants. However, from 1st April 2020 the Energy Efficiency Regulations will apply to all privately rented properties that come within its scope. With regard to these standards, local authorities will be provided with powers to ensure compliance including serving compliance notices and penalty notices, which landlords can appeal to be reviewed. The Energy Efficiency Regulations also provides for penalties for non-compliance, which range from £1,000 – £4.000 and publishing non-compliance notices.

Summary

The new Regulations, if they come into effect as proposed, will firstly create a period in which tenants can force improvements and then bring in an escalating automatic obligation to improve energy efficiency for all landlords of eligible properties.

Planning ahead to assess the likely impact of the proposed regulations will assist in managing their impact. Forbes can assist with advice on the application of the proposals and their likely effect. Contact Daniel Milnes if you would like to discuss how we could help your organisation.

Daniel Milnes

About Daniel Milnes

Dan is a Partner and Head of Contracts & Projects. Dan’s blogs cover the areas in which his specialities lie in commercial, regulatory and governance law which cover a broad range of matters dealing with contracts, projects, corporate and group structures, funding and compliance with a range of legal regimes including data protection. This also involves writing and advising on various forms of commercial contracts including joint ventures, development and construction agreements and intellectual property contracts including IT agreements, sponsorships and other rights licensing arrangements.
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