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The Future of Energy Efficiency in Renting

Landlords and rental property investors are now being encouraged to ensure their rentals not only adhere to the Minimum Energy Efficiency Standard, but exceed this energy efficiency threshold, essentially “future proofing” their portfolio. As it currently stands landlords are prohibited from letting out a rental property that has failed to achieve an energy performance rating of an “E” grade, but this threshold is set to be periodically raised over the coming years as the UK rental sector edges towards going green.  

The private rental industry has been identified as a leading contributor to greenhouse gas emissions within the nation as renewed efforts are made to assist the UK in meeting its obligation to reduce emissions. But this wouldn’t exclusively stand to benefit the “greater good” or faceless political agendas, with tenants being able to enjoy a heavily reduced running cost for their homes, whilst landlords will ultimately spend far less ensuring that the rental opportunities they offer hold up to regulations.

Discussions have already been held regarding an increase in the Minimum Energy efficiency Standard from an “E” rating to a “C” before a landlord is able to let out their property, by the year 2025, with this amendment encompassing all active tenancies by 2028. Whilst this is certainly not set in stone, the changes look likely none the less, raising the question of how much support [property investors will receive in meeting these new targets from the government.  However, this doesn’t look forthcoming as the government currently demands landlords contribute at least £3,500 when making changes to their rental that will increase its energy efficiency, but if the proposed changes are enacted, this limit could very well sour to an eye watering £10,000.

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A consultation on improving the energy performance of privately rented homes published by the UK government during the opening months of 2021 revealed that private rental properties currently comprise around 20% of available housing within the UK, with this band of property also being some of the least energy efficient. The consultation published damming statistics showing that in 2018 alone the private rental sector accumulated over £6 billion in utility bills, alongside producing over 11 megatonnes of carbon dioxide as over 3.2 million privately rented properties were found that have only achieved an EPC rating of a “D” grade, only one above the minimum energy efficiency standard.

Arguments have been made that if such changes take place, seeing millions of properties undergo essential changes, landlords will stand to reap the rewards through increased rental income, a heavy reduction in void periods due to their property’s desirability amongst a increasingly environmentally conscious rental demographic, alongside the appreciation of the property value itself.

Through the report the government assures that any changes to the rental spaces energy efficiency will be the most costs effective for landlords, whilst considering “the wider responsibilities a landlord has for his or her property.” Displaying their confidence the UK government estimated that such changes would bring approximately 900,000 low income houses to the relevant MEES of band “C”, whilst saving tenants an average of £220 each year on their energy bills.  

What Is the Minimum Energy Efficiency Standard?

Introduced into the rental industry in 2015, with extensions to its influence being made in 2018 and 2020, the Minimum energy Efficiency Standards established a strict threshold of environmental friendliness that a rental must surpass before being occupied by tenants. Whilst this was met with some resistance as to landlords that own older rental property stating that the costs they would incur bringing these dated properties up to current standards would simply be too high, leaving them to either sell their property, potentially leaving the rental sector for good. However, this move towards a greener rental sector is enforced through the Minimum energy Efficiency Standard, with current regulations dictating that a landlord is unable t to showcase their rental opportunity on the market without first obtaining a minimum EPC rating of an “E”.

However, perhaps to the dismay of many rental property owners, further regulation may be needed to ensure this momentum towards greener renting is maintained. Landlords are only currently required to have the energy efficiency of their rental accommodation evaluated every ten years, leaving a substantial amount of time for the property’s current measures to deteriorate. This not only leaves questions as to the report’s validity in the final years of this cycle; but that the costs a landlord would incur in updating the energy efficiency is delayed, but also made significantly higher because of this deterioration.

As mentioned above, when the landlord is provided with an EPC after the evaluation of their rental, they will be provided with numerous suggested courses of action to improve the rental’s efficiency. Naturally, if the property has fallen short of achieving the Minimum Energy Efficiency Standard these recommendations should be the owner’s first port of call. With this being said, whilst the EPC will offer the landlord guidance in how they can improve their property in these regards, the support ends there, leaving rental property owners to take on the full costs of bringing the rental sector up to scratch. Much to the delight of landlords, there is a limit on the amount they are obliged to spend towards these efforts and in some cases they may still be able to let out their rental property, even when it has failed to meet current efficiency standards.

Can a Landlords Till Rent Without an EPC?

If a landlord does not possess a valid energy performance certificate for their rental property then they will be prohibited from letting the opportunity out to tenants.  Rental property owners are legally required to hold a valid EPC for the property in question prior to the opportunity being advertised to prospective renters. Further to this it is the duty of the landlord to provide the EPC to tenants free of charge to any new tenants within 28 days of the tenancy agreement being signed, or in the events that the previous EPC expired, at the earliest possible opportunity. If a landlord has neglected to provide the occupants of their rental property with a valid EPC then not only could they face a fine of up to £5,000, but they will also be unable to serve the tenants with a section 21 notice of eviction as they will have themselves failed to uphold their obligation as a landlord.

If however the landlord is found to be letting out their property in a condition that fails to adhere to the current energy efficiency standards they will be faced with penalties enforced by the local authority, potentially having a severely detrimental effect on their ability to generate a rental income. If the landlord is suspected of letting out a property that is not suitably energy efficient it is highly likely that they will be served with a compliance notice from the local council, allowing them to conduct an enquiry into the results of the most recent energy performance certificate, and any alterations that have been made to the property in efforts to make it more energy efficiency. If these are found to be unsatisfactory and the landlord has knowingly let out the property in disregard of current regulations they could receive a fine of up to £5,000 per infringement.

Landlords are still able to let out their rental property if they have reached a specified financial threshold, even if the property still fails to meet the Minimum Energy Efficiency Standards demanded by regulations. Rental property owners would be able to do this through siting an exemption from the Minimum Energy Efficiency Standard, specifically, the “all relevant improvements made exemption.”  As can be expected, when using this exemption from the MEES, landlords will be required to document the changes made to the property, alongside the associated costs of these works. Providing that they have implemented these changes and the costs of doing so has amounted to this threshold, £3,500 at the time of writing, the owner of the rental property will not be required to incur an extra expenditure towards raising in the EPC rating of their rental. With this being said, as is the case with many exemptions from the MEES, this will only be valid for 5 years, requiring the landlords to have their rental property assessed for another EPC once this five year period expires.

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Landlords and rental property owners are able to take advantage of further exemptions to the Minimum Energy Efficiency Standards, relating the financial expenditure they have incurred in updating their property. Once again, in an effort from the UK government to recognise the overwhelming amount of out dated properties within the nation’s rental sector and the overwhelming cost bringing these properties up to current standards, a spending cap of £3,500 has been placed on each rental opportunity.  Whilst the circumstance is somewhat uncommon, if even the cheapest recommendation suggested on the landlord’s EPC for the property exceeds this £3,500 spending capo, the owner of the property is able to apply for a “high cost” exemption.  With this being said, the exemption is not simply granted without proper justification being provided by the landlord as in order to qualify the property owner will be required to provide at least three quotes from different tradesman to validate that the work could not be carried out without exceeding this monetary threshold.  Similarly to the previous exemption, this will not absolve the landlord of their duty to make their rental more energy efficient, but rather grant them with another five years in which to try and meet the minimum energy efficiency standard, currently set at an “E” rating.

Whilst the above exemptions have been heavily dependent on the landlord ability, or rather lack of, to fund the necessary changes to the rental property in order to increase its energy efficiency there are other circumstance that somewhat alleviate the pressures landlords face on meeting these stringent requirements. Firstly if the recommended changes to the rental property exclusively regard its internal, cavity or external walls, or their insulation, the landlord is able to make a case for an exemption as this could jeopardise the integrity of the rental’s structure. Additionally, if the changes proposed in the energy performance certificate would work to diminish the market value of the rental property once it is time to sell, the landlord could qualify for further exemption; however they must be able to demonstrate that such changes in the name of energy efficiency would devalue the property by at least 5%, alongside these claims being supported by an independent surveyor that is officially recognised by the Royal Institute of Chartered Surveyors. To the widespread relief of those that are new to the rental industry and letting out a buy to let property to tenants, a “new landlord” exemption can be made, temporarily absolving them of their duty to have a valid EPC for the property. However, this will only allow them to avoid holding an EPC for the rental during their first six months as a landlord. Once this period has come to a close if the landlord wished to continue to let out their property they must first gain a valid energy performance certificate and ensure that the rental adheres to the MEES.

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