Landlords call for green tax breaks as energy efficiency rules take force

April 3, 2018

 

As of April 1, commercial and residential rental properties need to hit energy efficiency rating 'E' for new tenants 

 

Landlords across the UK are calling on the government to provide extra tax relief to help them finance energy efficiency upgrades to their properties, after new rules took effect over the Easter weekend requiring homes and commercial properties to meet minimum energy saving standards.

 

The Minimum Energy Efficiency Standards (MEES) regulations came into force on April 1, requiring all domestic and commercial rental properties to meet at least an Energy Performance Certificate (EPC) level E or above.

 

Landlords face fines of up to £4,000 if their property is found to have a rating below the new standard.

 

The rules apply initially to new tenancies or contract renewals, but by 2020 will apply to all domestic rented properties on the market and by 2023 all commercial properties.

 

Landlords can register for an exemption if they cannot access 'no cost' funding to pay for the necessary upgrades, but in December the government proposed that the first £2,500 worth of work should be paid for by landlords upfront.

 

Late last week the Residential Landlords Association (RLA) to call for any such payments to be made tax deductible, an arrangement currently in place for landlord 'repairs' to a property but not 'improvements'.

 

The RLA said extending the tax break would encourage more landlords to make "ambitious" energy efficiency improvements.

 

"Whilst considerable improvements have been made over the last decade, private rented homes currently falling below the new energy standards are some of the hardest to treat properties of the country's entire housing stock," said policy director David Smith. "Given the importance the government attaches to improving the energy efficiency of rented homes there is a strong case for giving work to upgrade this the same tax treatment as for repairs."

 

BEIS, the lead department for the MEES regulations, was considering a request for comment at the time of publish. It has previously argued the £2,500 cost cap "strikes the right balance between achieving a robust ambition for the policy at a reasonable cost to landlords".

 

Despite having had three years to prepare for the introduction of the new rules, concerns remain over the level of landlord awareness of the MEES rules. A survey published last month warned of a "staggering" level of ignorance about MEES among landlords, with just four per cent of landlords aware of the impending rule change.

 

BusinessGreen found homes on the popular property search site Rightmove available for rent with EPC ratings of F and G at the time of going to press, although some listings with poor energy efficinency standards had been "temporarily removed".

 

However, mortgage providers are already signalling a change in practice. Last week The Mortgage Works, the buy-to-let arm of Nationwide Building Society, updated its valuation policy for properties with an EPC rating F or G that fall below the MEES threshold.

 

For these properties, lending will continue on the proviso that work is done to bring them up to an E standard, with the cost of works reflected in the valuation figure. The mortgage offer will be conditional on the work being undertaken within three months, unless the landlord provides an updated EPC or a valid exemption, The Mortgage Works said.  

 

The new lending policy provides some evidence the MEES rules could yet work as intended and result in many inefficient properties being upgraded, curbing energy use and carbon emissions in the process.

 

But many industry insiders remain concerned the regulations will only have their desired impact if the new standards are adequately promoted and aggressively enforced, so as to ensure all landlords comply. Moreover, experts have argued the government can maximise emissions savings from the policy by confirming when the standard will ratchet up - a move that would provide commercial and residential landlords with an incentive to upgrade properties to an A to C efficiency rating as soon as possible.

 

It remains to be seen when and if the first fines will be dished out for continuing to let inefficient properties, and signals clearly sent that landlords have no choice but to improve the efficiency of their properties as a matter of urgency.

 

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