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An update to the minimum energy efficiency standards

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Posted by Nathan Hinks on 08 April 2019

Nathan Hinks - Property and Real Estate Lawyer
Nathan Hinks Commercial Real Estate Solicitor

The regulations governing energy efficiency standards in private rented, residential accommodation, originally introduced in 2015, have been amended to remove the principle that energy efficiency improvements for domestic property should be made at no cost to the landlord. These amendments were made on 15 March 2019 and came into effect on 1 April 2019.

What are minimum energy efficiency standards?

In 2015, regulations made it illegal to let domestic or non-domestic private property if the energy performance of the property was rated ‘F’ or ‘G’ unless certain exemptions applied and were registered on the PRS register. These exemptions included:

1)     being unable to obtain the consent of the tenant;

2)     not being able to fund the improvements:

  1. under a Green Deal; or
  2. for non-domestic property “where the improvement would achieve a simple payback of seven years or less”; or

3)     certain other temporary exemptions

The 2015 Regulations made it illegal to grant new leases of sub-standard property after 1st April 2018. They will apply to existing domestic tenancies from 1st April 2020 and 1st April 2023 for non-domestic property.

Removal of “no-cost” exemption

Up until now, landlords have not been liable for the cost of energy efficiency improvements. However, landlords are now required to contribute up to £3,500 (including VAT) to improve the energy efficiency of the property up to an ‘E’ rating. They will also remove landlords’ “no-cost” exemptions with effect from 31st March next year.

Therefore, as a landlord one of the first things you will need to review are the Energy Performance Certificates (EPCs) for your properties. Firstly, EPCs last only 10 years so check how long the EPC has left to run. Secondly, consider what energy efficiency improvements can be made to bring the property up to, or beyond, an ‘E’ rating. Thirdly, get three quotations for the works. If you can’t improve the property to an ‘E’ rating for £3,500 or less then you may be entitled to register the new “cost-cap” exemption if all three quotes are above that figure.

Amendment to “consent” exemption

The consent exemption has also been amended to confirm that it will cease to apply “once that tenant’s tenancy has come to an end”. From a legal perspective, this wording is not especially helpful as it causes issues with assignments.

The current consent exemption applies where a tenant refuses to consent to any relevant energy efficiency improvement being made, or where satisfactory third party consent cannot be obtained. Unless the landlord reserves rights to do so, it will not be able to enter the property to carry out energy efficiency improvements without the tenant’s consent. Under a commercial lease, the landlord will often reserve certain rights to enter the property, for example to inspect for damage/disrepair, decorative issues, etc. While these rights are often very widely drafted, using them to enter to carry out significant works may be a breach of the covenant to give the tenant “quiet enjoyment” of the property or derogation from grant. That means that the tenant’s consent should be sought.

If the tenant is entitled to a renewal, either contractually or for commercial property under the Landlord and Tenant Act 1954, then the landlord can claim a temporary exemption – allowing the landlord to comply with its contractual or statutory obligations without breaching the 2015 Regulations. However, if the tenant assigns its lease then on completion of the assignment the tenant’s lack of consent will cease to apply and the landlord will need to rely on the assignee’s lack of consent.

The problem with the wording of the new regulations is that there is no temporary window allowing the landlord to ask for that consent. Landlords should therefore consider the EPC rating of the property before consenting to assignments as well as taking legal advice regarding what conditions that they could attach to any consent and what conditions may be reasonable in the circumstances.

About the author

Nathan Hinks

Commercial Real Estate Solicitor

Nathan specialises in non-contentious real estate matters for a broad range of owners, investors, developers, charities, educational institutions and corporate occupiers.

Nathan Hinks

Nathan specialises in non-contentious real estate matters for a broad range of owners, investors, developers, charities, educational institutions and corporate occupiers.

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