Landlords should be aware that from 1st April 2018, new Minimum Energy Efficiency Standards (MEES) will prohibit landlords from granting new tenancies (or renewing/extending existing tenancies) for properties with an EPC rating of F or G. The Government has now signalled their intention to toughen the regulations even further.
As it stands currently, landlords can register an exemption if there is no third-party funding available for improvement works as the regulations include a “no upfront costs” rule. This would have been fine if the Green Deal worked as intended when the regulations were made back in 2015 but its failure means a lot of otherwise affected properties could be made exempt due to lack of available finance.
The Government is well aware of this potential loophole, and had intended to amend the regulations earlier this year to replace the “no upfront costs” rule with a “cost cap”, whereby landlords would have to fund improvements themselves up to a certain level. This is the route being taken by the Scottish Government in their PRS energy efficiency plans.
Unfortunately for the Government, Theresa May called a snap election that put everything on hold and they ran out of time to make the changes. The new Minister of State for Climate Change, Claire Perry MP, recently wrote to us confirming that the “cost cap” was very much still on the agenda, despite the minimum standards coming into force in less than 6 months:
“As you are ware, over the past year officials have been exploring options for a ‘landlord cost cap’ as an alternative way of delivering a meaningful number of improvements in the absence of a nationally available Green Deal finance offer. No decisions have yet been taken on this proposal, but Ministerial colleagues and I are carefully considering the impacts on all parties, including landlords and tenants. I hope to be able to announce decisions shortly…”
Last week the Government published its Clean Growth Strategy setting out an ambitious target to bring all private rented sector properties up to an EPC rating of C by 2030 “where practical, cost-effective and affordable.”
The Strategy also suggests an imminent changing of the regulations underpinning the minimum energy efficiency standards, with the Government stating they “will consult shortly on steps to make these regulations more effective.”
While we await a more definitive announcement regarding the Minister’s intentions, it seems likely that removing the “no upfront costs” rule from the regulations will form part of her plan to increase the effectiveness of the minimum standards.
For now, landlords with properties rated F&G should make sure they have read the guidance available here, and register any valid exemptions before 1st April 2018. Failure to comply with the regulations could leave you with a fine of up to £5,000.
The Case for Incentives
While energy efficiency in the PRS has improved, with properties in the F&G efficiency bands down from 20.5% in 2008, to 6.3% in 2015-16, the sector has unique challenges to overcome (not least because a third of PRS properties were built pre-1919).
The NLA believes that the toughening-up of these regulations with the accompanying financial burden they place on landlords at a time the Section 24 tax changes start to bite is ill-advised (to put it very mildly!).
Instead, we have called on the Government to reintroduce the Landlord Energy Saving Allowance (LESA) in the Autumn Budget next month to incentivise rather than punish – a policy that even Corbyn’s Labour Party supports.
Until the Government changes its mind on Section 24, the allowance could be used as an outlet for the worst impacts of the changes. It would also allow landlords to directly benefit from improving their properties while at the same time allowing all tenants to benefit from lower energy bills and warmer homes, rather than just those in F&G rated properties.
In his speech to the Conservative Party Conference earlier this month, Communities Secretary Sajid Javid promised that the upcoming Autumn Budget will introduce incentives for landlords who “are doing the right thing.”
We’ll have to wait until 22nd November to see if LESA is included as one of those incentives.