From 1st April, Landlords renting energy inefficient properties have been liable for large fines, thanks to new legislation. In addition, they may have to pay thousands towards the cost of implementing energy saving measures.
Rented property that cannot meet a minimum Energy Performance Certificate (EPC) rating of E or higher will need to be improved with measures such as a new boiler, double glazing or wall insulation to improve their rating.
In the past, properties that failed to achieve Band E could be brought up to the required standard using third-party funding – the Green Deal for example. With the new rules in place, landlords will have to pay up to £2,500 towards the cost themselves. Of note, Landlords can only count parts and labour when calculating their spend towards the £2,500 cap – and consequently, the improvements could cost Landlords far more when incidental costs such as redecoration and loss of rental income are factored in.
It is estimated that around 280,000 homes will need improvement, representing 6.6% of the rental sector with F or G EPC ratings. Landlords have said that those renting properties in cheaper areas will be hit the hardest – where rental incomes can be as low as £400 each month.
Landlords have already suffered in recent years with a spate of legislation reducing their rental yields which included changes to mortgage tax relief. However, critics have argued the cap should be higher, suggesting landlords would have at least twice the amount put aside for emergencies.
A summary of the rules
The changes introduced by the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 currently apply to grants of new tenancies and renewals. Landlords will be liable to carry out improvements where:
- a. The property to be let is legally required to have an Energy Performance Certificate because (a) it is being let, or has been let in the past; or (b) it is being sold; or (c) it has been improved and Building Regulations mean that an Energy Performance Certificate is required.
- b. The property to be let has a current, valid EPC (no more than 10 years old)
- c. The property to be let has an energy efficient rating of F or G on the Energy Performance Certificate.
If the property has an EPC that was obtained in the past when it was required but the EPC is now more than 10 years old, Landlords do not need to have another one produced. A new EPC will be required the next time the property is let/the tenancy is renewed or it is sold. The rules will apply to existing tenancies (where there has not been a renewal in the meantime) from 1st April 2020. Full guidance can be found here.
Business premises are also affected by the rules: but with some differences. Where a business property is rented under a continuing tenancy, the rules will not apply until 1st April 2023. However, if the landlord grants a new business tenancy or renews, the 1st April 2018 start date applies. Full guidance for non-domestic properties can be found here.
Landlords failing to meet the requirements face losing rental income whilst their properties sit empty – and those offering new lets on energy inefficient properties face hefty fines. Renting out a non-compliant property for less than 3 months will attract a fine of up to £2,000, whilst renting it out for more than 3 months could result in a fine of up to £4,000. In addition, providing false or misleading information on the PRS Exemptions Register or failing to comply with a compliance notice can attract further fines of £1,000 and £2,000 respectively.
Fines are applied to each property and to each breach, and additional ‘publication’ penalties may be payable, where an enforcement authority takes actions to publish details of the landlord’s breach, on the publicly accessible part of the PRS Exemptions Register.