EPC Fines to hit Landlords from April 2020

“Washing machine energy ratings for houses” was the phrase one landlord told me a few years ago when we were talking about the colour bar chart graphs that every property has had for over 10 years now.

Now these weren’t brought in to use the whole palate of ink in people’s printers, but to increase the energy efficiency of the UK’s housing stock.  The vast majority of  landlords are, by now, acquainted with the legislation that came into force on the 1st of April 2018, that means all new and renewed private tenancy agreements must have an Energy Performance Certificate (EPC) rating of E or above, otherwise it would be illegal to rent the property out. (EPC ratings go A to G – A being the best and G the worst).

The MEES Legislation Update

Yet, from 1st April 2020, MEES (Minimum Energy Efficiency Standards) will be extended to also cover existing tenancies, meaning that under the new legislation, properties with an EPC rating of F or G will be classed as unrentable – meaning it will be illegal to rent the property and the landlord will be liable for a minimum fine of £5,000.

It will be illegal for any landlord to let any Rental Property with an EPC rating of F & G from April 2020.

Back in 2018, there was a loophole for landlords of F & G rated rental homes on new tenancies, where they did not need to upgrade the property for five years if it cost them money (called the ‘no cost to landlord’ exemption rule) – yet back in April 2019 this exemption to improve rental properties was removed – so they too are included in these new rules.

Therefore, this means that  landlords in the Derby and Burton-on-Trent area must use their own cash to cover the cost of improving their property to at least an EPC band E, and we aren’t talking about an insignificant number here…. According to the EPC Register…

There are around 410 Derby properties and 180 Burton on Trent properties that will be illegal to rent out from the 1st April 2020 … as they have energy ratings of F and G.

There is a Spending Cap…

Now this requirement to upgrade the property is subject to a spending cap of £3,500 (including VAT) for each rental property, as landlords only need to spend what they need to, to improve their property to EPC rating E.

In cases where a landlord is unable to improve their property to EPC rating E within the £3,500 cap, then they still need to spend their hard earned cash and carry out the most appropriate measures which can be installed up to the £3,500 cap, and then register an exemption (with 3 quotes from 3 contractors) for their property on the basis that all relevant improvements have been installed and the property remains below an E.

If you own a Terraced Property…

It might be wise for landlords who have had their rental properties for a while now to get a new EPC carried out on their property (something we can help with irrespective of whether you are a landlord of ours or not) as recent research has also acknowledged that some early EPC’s understated the thermal efficiency of solid walls.

As countless Derby and Burton on Trent rental properties are pre 1925, which is when most , but not all, new properties were built with cavity walls, the Department for Business, Energy and Business Strategy have now recalibrated EPC’s to give a truer result. This probably means that some solid wall properties, Victorian and Edwardian terraced houses and converted flats, presently rated F under an EPC will no longer demand any improvement works and certainly less building work may be required in the case of a G rated rental property.

Exemptions

If a property is caught by the EPC regime, landlords must comply with the MEES Regulations, unless one of a few exemptions available to landlords can be relied upon…

1.       Exemption due to devaluation – a temporary exemption of 5 years will apply if a landlord can demonstrate that the installation of energy efficiency measures would reduce the market value of the property by more than 5%;

2.       Exemption for new landlords – if a person becomes a landlord recently or suddenly in specified circumstances under the MEES Regulations, a temporary exemption of six months will apply;

3.       Third party consent – if a landlord cannot obtain necessary third party consents to improve the EPC rating of the property (including but not limited to lender consent or tenant consent), then a landlord may let a “sub-standard” property.

A landlord wishing to rely upon an exemption must register an exemption on the online Private Rented Sector Exemptions Register. Local authorities give and keep these fines and so are incentivised to enforce the legislation.

Non-Compliance

If a landlord fails to comply with the MEES Regulations, there are financial penalties, which vary depending upon the length of the breach.

A landlord renting out a “non-compliant” property (less than three months in breach) may be fined up to either £5,000 or 10% of a rateable value up to a maximum of £50,000, whichever is greater.

A landlord renting out a “non-compliant” property (three months or more in breach) may be fined up to either £10,000 or 20% of the rateable value up to a maximum of £150,000, whichever is greater.

There is also a fine of up to £5,000 for providing false or misleading information, or failing to comply with a compliance notice.

Next Steps…

MEES Regulations impose further onerous obligations on landlords operating within the private rented sector.

If a landlord has a property with an EPC rating of F or G then unless one of the exemptions referred to above applies, you should begin preparing now for the extension of the regulations to existing tenancies to take effect on 1st April 2020.

As the deadline fast approaches, landlords would be well advised to consider the following, in order to protect their assets:

1.       Review your property or property portfolios to identify whether or not properties are compliant;

2.       Consider the cost and extent of any works required;

3.       Consider access to the properties (lease terms permitting) to carry out works required to bring the properties up to the minimum ‘E’ rating; and

4.       Consider whether any exemptions may be relied upon.

Failure to do so will impact upon landlords’ abilities to market and rent their properties.

One last thing…

There is speculation that MEES will rise again in 2022, making ‘C’ or ‘D’ the new minimum requirement.

When considering any works to upgrade a property to comply with the MEES Regulations for April 2020, landlords should also bear in mind the potential future impact of the regulations.

If you are a self-managing Derby or Burton landlord or a landlord with another local agent, then feel free to pick up the phone and chat through any concerns with regard to these new regulations, how to read a EPC graph, how to find the EPC rating of your home, in fact anything – call us… the last thing you need is a £5,000 fine on top of the £3,500 improvement bill!

Please contact James Cope or Simon Joyce on 01332 300172