One upcoming law which will have significant changes to the property market and landlord and tenant regulations will be the Government’s introduction of minimum energy standards. From April 2018, all rented properties must meet a prescribed minimum energy performance standard.
An Energy Performance Certificate (EPC) will contain an indicator of the amount of energy estimated to be needed for the standard use of the building. This rating is expressed as a number with the bands ranging from A (very efficient) to G (inefficient).
Any rented property rated F and G must be brought to a minimum of E by 1st April 2018, or the owner could face being unable to let the property until they improve the rating. Landlords will be able to let out F and G rated properties beyond 1st April 2018 for the remainder of existing rental contracts, but will not be able to renew a contract or let the property to someone else until it is brought up to an E rating.
Almost 10% of England and Wales’ 4.2 million privately rented homes currently fall below the E rating.
The regulations also mean that from 1st April 2016, tenants living in F and G rated homes will be able to request improvements such as more insulation. The landlord will then be legally bound to bring the home up to an E-rating. If a tenant requests a more efficient home and a landlord fails to comply, the landlord could be forced to pay a penalty notice.
Former Energy and Climate Secretary, Ed Davey, said of the upcoming changes:
“This is a very big measure. Effectively, we’re saying, if you do not improve your property up to the minimum of EPC E rating by three years’ time, you will not be able to let out that property. Which is quite a big stick, and it’s about time too. It’s really going to make a massive difference between now and the end of the decade.”
Given the risk to property owners, particularly the danger of reduced marketability, it is clear that a full understanding of the energy efficiency of current and future acquisitions of buy-to-lets should be attained and passed over to clients. Receiving this advice as early as possible will allow owners and occupiers to assess the costs and viability of undertaking refurbishments to meet the minimum standards or possibly bringing forward properties for marketing prior to 2018.
In addition, both landlords and tenants should be advised to check the terms of existing leases and consider carefully the drafting of new ones with these regulations in mind.
Anyone representing a tenant or prospective tenants should also make them aware of the implications of any work that their landlord may be planning to improve energy efficiency. This may cause them disruption, and they might end up paying for some of the work under the service charges or their obligations under the lease to repair the property.
Property advisers carrying out EPCs should make clients aware of situations where EPC assessments may be marginal and, subsequently, make timely recommendations as to how premises could be upgraded to meet the requirements.
The situation could be escalated in the future with the Government’s aim to see a minimum rating of C in place by 2030.