Landlords Set to Face Strict Energy Efficiency Obligations

1st August 2014

Two consultations published by the UK Government on 22nd July are set to implement strict energy efficiency regulations for both domestic and non-domestic landlords in a bid to drive the UK property market towards meeting energy efficiency targets.

For the non-domestic sector, minimum energy efficiency regulations for England and Wales will mean that by 1 April 2018, all eligible properties will have to be improved to a minimum energy efficiency standard before being let to tenants or sold, except where certain exemptions apply.

The minimum standard regulations are specifically targeted at focussing property owners and landlords on bringing the least efficient properties – those rated F or G on the Energy Performance Certificate (EPC) scale – up to a minimum E rating.

Currently, 18% of non-domestic properties are rated within the F & G bands of the EPC rating scale and will require investment and upgrades to meet the new minimum standards.

The only proposed exemptions to the proposed new regulations include:

  • Any building which is not required to obtain an EPC as determined by the EPC regulations (e.g. a building which is about to be demolished).
  • Where a property falls below an E EPC rating, the landlord would only be required to make those improvements which could be made at no upfront cost.
  • Where a landlord is denied necessary third party consent to carry out any required improvements, such works would not be required.
  • Where an independent property valuation demonstrates that required improvement works would result in a net material reduction in a property’s value.
  • Non-domestic properties which are owner occupied.

The above exemptions would also have an expiry period, proposed to be 5 years, or earlier where a tenant who previously refused to provide consent vacates the property. After this time, the landlord would be expected to then comply with the standard or demonstrate an exemption in order to be able to let the property.

For clarity, non-domestic buildings within the scope of the EPC regulations newly let from 1 April 2018 onwards will be required to comply with the new regulations. In addition, from 1 April 2023, a regulatory “backstop” will apply whereby all properties within scope would be required to meet the standard (including existing lets) or demonstrate a valid exemption such as the refusal of a sitting tenant to consent to improvements.

The Government is also seeking views around defining a forward trajectory to increase the minimum standard over time in order to help businesses make decisions over what improvements to undertake and when.

For the domestic private rented sector, the proposed new regulations empower private domestic tenants to request consent for energy efficiency measures that may not unreasonably be refused by their landlord, from 1st April 2016. In parallel with the non-domestic sector, eligible domestic properties, those within the scope of the Energy Performance of Buildings (England and Wales) Regulations 2012, must also be improved to a minimum E EPC rating standard.

Following the consultation, the Government plans to issue its response and lay the regulations by the start of 2015 in order to provide sufficient time for businesses to prepare for the regulations coming into force in 2018.

Andy Smith, Principal Technical Consultant for the S2 Partnership said:

“For many years, energy efficiency in buildings has been seen as a way of reducing costs of running a building, but there have been no further consequences for not improving efficiency. Through the introduction of these parameters, the government hopes to give financial incentives for landlords to invest in their properties to improve their efficiency. Although levels of fines are not clear yet, it is heavily insinuated that failure to bring buildings in line with minimum standards will incur a penalty.

“Introducing measures to improve the efficiency of a building can form part of an effective full Environmental Management System which includes the setting of targets, tracking progress against them and then reviewing how to improve performance. This highlights the importance of having robust plans and management systems in place within an organisation, as the introduction of these parameters is a sign that the government is looking to force the hand of investors to ensure that the UK is able to meet wider emissions targets.”

The S2 Partnership is encouraging those who may be affected to follow these top 3 tips to prepare for the changing energy efficiency regulations:

  1. Get an up-to-date EPC which is reflective of the current property performance
  2. Formulate an energy action plan to improve the rating of the property where necessary
  3. Implement these plans and review performance against them for continual improvements

To review the full consultation documents, please click here.

Both consultations close on 2nd September 2014.

The S2 Partnership’s team of specialist environmental consultants work with clients to manage environmental priorities and meet legislative requirements. Working with clients to develop practical solutions and cost-saving opportunities through environmental audits, our focus is driving continuous improvements by reviewing and applying emerging technologies. For further information or advice, please contact our environmental team.