LEADING regional law firm, Howes Percival, is urging landlords, if they have not already done so, to review their property portfolio’s energy performance to ensure they meet tougher new standards for new lettings.
From April, The Energy Efficiency (Private Rented Property) England and Wales Regulations 2015 (also known as the MEES Regulations) – designed to raise the energy efficiency of private rented properties – came into force. From now on, it will be unlawful for landlords to grant a new lease, including renewals or extensions, for properties that have an energy performance certificate (EPC) rating below E, unless an exemption is registered. This means that domestic or non-domestic properties rated as F or G cannot be let to new tenants, or have tenancies renewed, until the energy rating is improved.
Landlords failing to comply with the new regulations face hefty penalties of up to £150,000 for commercial lettings and up to £4,000 for residential lettings.
Under the regulations, landlords can register exemptions to compliance. To be valid, exemptions must be on the public register and landlords can only rely on exemptions for a period of five years, at the end of this period the landlord will have to register the exemption again. Exemptions are not transferable to new owners.
Exemptions include:
* where required consents are not forthcoming from superior landlords, tenants or third parties;
* where independent professional evidence establishes that energy efficiency improvements would reduce the value of the property by more than five per cent;
* temporary exemptions for six months, where a person has become a landlord suddenly e.g. creation of a new lease by court order.
Penalties for non-compliance
For residential lettings, landlords could face fines of up to £4,000. Fines for commercial property lettings are:
* if the breach is less than three months – the greater of £5,000 or 10 per cent of rateable value of the property, up to maximum of £50,000;
* for breaches of more than three months – the greater of £10,000 or 20 per cent of rateable value of the property, up to maximum of £150,000;
– £5,000 for providing false or misleading information on the exemptions register, or for failing to comply with a compliance notice;
– publication of the penalty on public register;
– risk not being able to let the property and investors may not invest if the income stream and/or the value of the security is jeopardised.
Joanna Nicholls, a partner with Howes Percival specialising in commercial property law explained: “The new regulations are designed to help the Government achieve its targets of reduced carbon emissions by ensuring that commercial and domestic landlords achieve a certain level of energy efficiency before they can let their buildings.
“Initially the regulations will only apply to new lettings but over the next few years they will be extended to cover existing lettings. From 1 April 2020 landlords of domestic property will be prohibited from continuing to let an already tenanted building rated at F or below. The cut-off date for landlords of commercial property is 1 April 2023.
“Landlords who’ve not already done so, should review their property portfolio’s EPC ratings to identify whether any properties fall below an E and plan any improvement works accordingly. To ensure they meet their obligations under the regulations, landlords should also consider the terms of their leases. Examples of points to consider include clauses relating to tenant’s works, yielding up, rights of entry, statutory compliance and repairing obligations.”