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The MEES Regulations and residential landlords: can't I just claim an exemption?

  • United Kingdom
  • Real estate

13-02-2018

Background

It’s no secret that landlords, and even tenants, are not fans of the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (SI 2015/962) (Regulations). The Regulations impose a prohibition on granting new tenancies of substandard residential property (those with EPC rating “F” or “G”) from 1 April 2018. This prohibition will extend to continuing existing residential tenancies from 1 April 2020.

The Regulations are linked to the government’s Clean Growth Strategy, which aims to cut emissions and increase energy efficiency. Whilst most would agree that improving energy efficiency is a good idea, the Regulations will have a considerable impact on investment opportunities and income streams, and will add to an ever-growing administrative burden for all landlords. In addition, the Regulations and guidance are such that those involved are finding them tricky to navigate: how will the regulations be implemented, monitored and enforced, and generally, how will they all work?!

These issues are likely to be definitively resolved only once the prohibition on letting comes into force and policy and practice develop. It is also unhelpful that the government guidance almost raises more questions than it answers. However, we can unravel some key principles around exemptions as it seems this is what most concerns residential landlords.

Exemptions

The short (but not very helpful) answer to whether residential landlords can claim an exemption is “maybe”. In any event, exemptions only last a maximum of five years.

There are exemptions that landlords can rely on in certain circumstances:

All “relevant energy efficiency improvements” have been made (or there are none) and the property is still rated “F” or “G”

The Regulations were based on a “no cost” principle, so that landlords of substandard residential property would only have to make improvements where they could do so entirely using third party finance. Where finance cannot be obtained for particular works, those works would not be “relevant energy efficiency improvements” that the landlord would have to do.

Just before Christmas, the government launched a consultation to remove the "no cost" element and replace it with a capped contribution from the landlord, given that the Green Deal funding scheme was ended in 2015 after poor uptake. The government’s preferred cap level is £2,500 per property.

The proposed cap is a compromise between limiting the potential costs for landlords and ensuring that as many tenants as possible can benefit from an energy efficient home. This new proposal would mean that about 30% of affected residential properties would be improved to at least an “E” rating. The government’s impact assessment favours this approach to ensure that the Regulations achieve what was intended: the reduction of emissions, improved energy efficiency and, in the long run, creation of sustainable buildings which are cost effective for landlords and tenants alike.

However, a stumbling block to this approach is that it is the landlord who will pay and it is the tenant who will benefit through reduced energy costs. There are concerns that landlords will simply increase residential rents to pay for works in the event that the "no cost" exemption disappears. This would counteract any savings to the tenant made as a result of the energy efficiency improvements.

The consultation is open until 13 March 2018. Once it closes, the government intends to issue its response and amend the Regulations as soon as possible. It expects that the "no cost" exemption would cease in April 2019 and be replaced with the capped contribution.

Lack of necessary consent

Although it seems unlikely when it would save them money, residential tenants may not want the inconvenience or hassle of potentially long and intrusive works carried out to the property they call home. In such instances, where the landlord needs the tenant’s consent (or that of another third party, such as its mortgagee), and consent isn’t given, then this qualifies as an exemption for the landlord of up to five years (or until that tenancy ends).

Temporary exemption

Landlords can obtain a temporary exemption of six months in some circumstances, such as where they buy a property with a residential tenancy already in place. This temporary exemption is just enough time for a landlord of a substandard property to carry out the necessary works or to claim a different and longer-lasting exemption.

Energy efficiency obligations in the future

With climate change, emissions and fuel poverty all on the government’s agenda, energy efficiency obligations are only likely to become more burdensome. Landlords and tenants should see the Regulations as just the beginning and prepare for a future change in the substandard EPC rating. It is likely that this will include properties with an EPC rating of “D” and “E” in the not-so-distant future.

For more information contact

Roshni Patel, Trainee

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