The government is proposing that residential landlords should contribute towards the cost of improving the energy efficiency of their properties.
Minimum Energy Efficiency Standards (MEES) for properties that are to be let come into force on 1 April 2018. The legislation applies to both commercial and residential properties.
We have written about commercial properties in our article entitled Guidance on Minimum Energy Efficiency Standard published. This article considers residential properties.
Under the current legislation, landlords of so-called sub-standard residential properties (those with an EPC rating of F or G) are required to upgrade the energy efficiency of their properties only if this can be done at no cost to the landlord. The legislation envisaged that this would be achieved by way of one or more of a Green Deal finance plan, the Energy Company Obligation (ECO) or a local authority grant.
However, the Green Deal - an innovative funding solution under which a landlord borrows money to undertake specified energy efficiency improvement works - was effectively withdrawn in 2015 as a result of the Treasury's refusal to continue to fund it. There are currently some Green Deal providers but not sufficient to carry out all the works that are expected to be required. The Energy Company Obligation is currently not scheduled to continue beyond 2022.
However, the government is keen that residential landlords are put under some obligation to carry out works and it has now issued a consultation which suggests that landlords of sub-standard residential properties should contribute towards the cost of improving their energy efficiency, but with a cap on their contribution of £2,500 per property.
The government's suggested new approach
The consultation document explains in the executive summary, if nothing is done, it is "highly likely that many landlords of F and G rated rental homes will be unable to deliver improvements in line with the current regulatory requirements. This would be to the continued detriment of their tenants and would mean that the (MEES) regulations would fail to achieve the wider benefits [for which they were made]".
The key proposed amendment is the removal of the 'no cost to the landlord' principle. As mentioned above, a cap of £2,500 per property is being proposed. A landlord will need to ascertain what works are required (as stated in the EPC recommendations report) and investigate whether no cost funding is available. If it is, this should be used. If it is not, then the landlord must carry out sufficient works to reach an E rating, using his own funds, up to a maximum of £2,500 per property (inclusive of the amount of any third party funding that is available). A landlord who spends the full £2,500 on a property but is unable to bring the rating up to E would be entitled to register an exemption, which would last for five years.
The cap of £2,500 is a compromise. The Government estimates that such an approach should enable approximately 30% of sub-standard properties to be improved to E, which equates to approximately 85,000 properties. It also says that the average cost of works to bring a property up to an E rating is £865. If a cap of £5,000 per property were chosen, this would mean that 42% of substandard properties would be improved to E, equating to 120,000 properties. On the other hand, if a cap of £1,000 was chosen, this would mean that only 14% of properties would be improved, amounting to 40,000 properties. A lengthy and complex impact assessment accompanies the consultation document.
Proposed implementation date
The proposal is that these changes should take effect on 1 April 2019. On that date, any existing exemptions registered by landlords based on the 'no cost to the landlord' principle would cease to be valid. In readiness for that date, landlords would at that point need to reassess their properties and potentially spend their own money improving them.
The consultation closes on 13 March 2018. A link to the consultation is set out below. Residential landlords are encouraged to respond. Although the change appears to be minor, the proposed requirement for residential landlords to spend their own money on energy efficiency improvement works changes the basis on which the legislation was originally intended to operate in a major way.