The Climate Change Act 2008 set to reduce carbon emissions in the UK and Wales by an ambitious 80% by 2050. Following this the government has looked at ways to reduce our carbon footprint and has acknowledged that a large contributor to the carbon emissions of the UK and Wales are properties.
In 2002 the EU introduced regulations to improve the energy performance of buildings including the introduction of a requirement for buildings to have an Energy Performance Certificate (EPC). This requirement was extended in the Energy Performance of Buildings Directive 2010.
EPCs were then implemented by the government in England and Wales under the Energy Performance of Buildings (England and Wales) Regulations 2012 (DI 2012/3118) ("the EPC regulations").
What is an EPC?
An EPC provides information in relation to a property's energy efficiency. An EPC issued on or after 9 January 2013 must include information of the property's asset rating, a recommendation report, a reference number, details of the property, an issue date and Green Deal information.
When is an EPC required?
An EPC is now required when a residential or commercial property is built, sold, let, significantly altered or is subject to a Green Deal plan.
The EPC regulations oblige sellers/ landlords to obtain an EPC before marketing the property, to include the EPC rating when advertising the property and to produce a valid EPC for the property to any prospective buyer or tenant.
There are, however, some properties which are exempt, including but not limited to:
- Some listed buildings
- Holiday accommodation that is in use for less than 4 months a year or is let under a licence to occupy
- Residential accommodation that is in use for less than 4 months a year
- Temporary buildings that will be used for less than 2 years
Furthermore there are some transactions which do not trigger the EPC requirements when selling or renting, including but not limited to:
- Lease renewals
- Lease extensions
- Compulsory purchase transactions
- Lease surrenders
- Not-for-value transactions
Penalties for non-compliance
A failure to comply with the EPC regulations incurs a penalty which varies according to the type of property and the nature of the breach. Generally, however, the penalty is £200 for a residential property and for commercial property 12.5% of the rateable value of the building (subject to a minimum- usually £500- and maximum- usually £5,000- penalty).
EPC's and the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 ("the MEES Regulations")
In March 2015 MEES Regulations brought into force minimum EPC requirements in the residential and commercial private rented sector.
From 1 April 2018 it will be unlawful to grant new leases for a residential or commercial property which does not have the minimum EPC rating of E.
From 1 April 2020 this will expand to all existing residential privately rented properties.
From 1 April 2023 this will expand to include all existing commercial leases as well.
The MEES Regulations do not apply to properties:
- Which are not required to have an EPC
- Where the EPC is over 10 years old or where there is no EPC
- Which are subject to a tenancy with a term of less than 6 months (and which do not have a right to renewal) or a tenancy with a term of over 99 years
In addition a landlord can still let a property which fails below the minimum energy efficiency standard if:
- Third party consent has been refused or has been obtained but with conditions with which the landlord cannot reasonably comply
- Where the energy efficiency improvements will result in a 5% or more diminution in value to the property
- Where an assessor has determined that all the relevant energy efficiency improvements have been made to the property or that the improvements would not pay for themselves through energy savings within 7 years
Practical considerations for landlords
Landlords should now consider which properties are affected by the MEES Regulations and review the EPCs for those properties. For all applicable properties landlords should consider making a schedule of improvements to spread the costs of any energy efficiency improvements and to avoid any period where the property cannot be rented out.
In addition landlords should be mindful of the terms of existing leases, for instance ensuring that they have a right to enter the property for the purpose of improvements, as well as relevant changes which should be made to future leases, for instance including a term to enable them to recover the cost of improvements from the tenant.
Landlords should also be mindful of triggering events such a subletting, lease renewals and break dates which may result in them being required to comply with the MEES Regulations earlier than expected.
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