Landlords prohibited from letting energy inefficient properties

We have previously reported on provisions of the Energy Act 2011 which aim to improve the environmental performance of properties as part of the Government's "Green Deal" initiative through regulations to be introduced by 1 April 2018.

Those proposed regulations were published as the Private Rented Sector Energy Efficiency Regulations (Non-Domestic) followed by a consultation process, and, as of 4 February 2015, the regulations were laid before parliament with Government publishing its response to the consultation on 5 February 2015.

Effect of Regulations

The regulations will prohibit commercial landlords from letting 'non-domestic private rented properties' with the lowest Energy Performance Certificate (EPC) ratings. Non-domestic private rented properties means 'any property let on a tenancy, which is not a dwelling' and as expected, the lowest acceptable EPC rating will be rating E.

When and how the regulations apply

From 1 April 2018, the regulations will apply upon the granting of:

• a lease to a new tenant; and
• a lease to an existing tenant.

From 1 April 2023 this will be extended to include properties where a letting is already in place and the property is already occupied.

Exemptions

Certain properties will not be subject to the regulations including those:

• which do not require an EPC;
• let on a tenancy which is granted for a term of 6 months or less (provided the granting of the tenancy does not mean the tenant will have occupied the property for in excess of 12 months);
• let on a tenancy for 99 years or more.

It will also be possible to carry on letting properties with a lower than E rating where:

• the improvements necessary to improve the rating are not cost-effective, either within a seven year payback, or under the Green Deal's Golden Rule; or
• despite reasonable efforts, the landlord cannot obtain necessary consents to carry out the required improvements, including from tenants, lenders and superior landlords; or
• a relevant suitably qualified expert provides written advice that the measures will reduce a property's value by 5% or more, or that wall insulation required to improve the property will damage the property.

Where a landlord considers an exemption applies the landlord will need to notify this on a centralised register (the "Private Rented Sector (PRS) Exemptions Register").

Penalties

It is expected that local Trading Standards will be responsible for enforcement of the regulations. Penalties for non-compliance can be severe, including, if there is 3 months or more of non-compliance, a fine of 20% of the rateable value, but with a minimum penalty of £10,000 and a maximum penalty of £150,000 along with publication of non-compliance.

Summary

Those landlords with properties likely to fall within the regulations should be considering the impact on their properties now in readiness for the regulations coming into force in a little over 3 years from now.

This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.