Starting 1st April 2018, all private rental properties, commercial or residential, cannot be let in England and Wales, without an EPC (Energy Performance Certificate) rating of at least ‘E’. This applies to not just new tenancies, but also to the renewal of tenancies. Even all the existing tenancies are to comply with this requirement - by April 2020, if it’s a residential letting and by April 2023, in the case of a commercial letting.
It is The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 which has introduced the above qualification. This statute is a part of the legislature’s effort of achieving its target of ‘close to zero’ CO2 emissions from all buildings by 2050.
The maximum penalty for not complying with the minimum EPC rating rule is £150,000 for commercial properties and £4,000 for residential properties.
What this means for the landlords is that they may have to make improvements to their properties like loft insulation, wall insulation, double glazing, and boiler upgrade, among others, to be able to let them. But more energy efficiency would mean lower running costs for the building. This is beneficial to both the landlords and the tenants. In fact, a better EPC rating would make a property more attractive to potential renters, which in turn means the landlord could charge higher rents. Also, we shouldn’t forget the larger interest here - that of the environment. A healthy environment is absolutely essential for the landlords too, just like all other living beings in the world.
There are a few exemptions to the minimum EPC rating condition. These exemptions are only available for a period of 5 years and that too only upon registering on the central government’s ‘PRS Exemptions Register’. Also, the exemptions are not passed over to the new owner upon the sale of a property. The new owner has to either improve the property or register the exemptions again, before letting the property. The following are the grounds for exemptions:
1) Cost-effectiveness: If the landlord has carried out all the relevant energy efficiency improvements that can be carried out cost-effectively (cost-effectiveness determined by a seven-year payback test or the Green Deal’s Golden Rule) and still the EPC rating is below ‘E’, he/she will be exempt from the minimum energy efficiency regulation.
2) Lack of third-party consent: There could be instances where the landlord is not able to make improvements to the property because he/she couldn’t obtain consent for the same from a mortgage lender, local authority, tenant, or some other third party.
3) Devaluation of property: If the implementation of measures needed to comply with the minimum EPC rating regulation would reduce the market value of the property by more than five percent.
4) Recently becoming a landlord: Sometimes a person becomes a landlord suddenly and it is not reasonable to expect such a person to abide by the minimum EPC rating stipulation. This exemption is available only for a period of 6 months.