Consultation on minimum energy efficiency standard for the private rented sector

On the 22 July 2014 the Department of Energy and Climate Change (“DECC”) published two important consultations on the private rented sector energy efficiency regulations (domestic and non-domestic properties). On the same date DECC published the reports to Government from the Non-Domestic Minimum Building Energy Performance Standards Working Group (“non-domestic working group”)  and the Domestic Private Rented Sector Regulations Working Group ( domestic working group”).

Both consultations close on the 2 September 2014 and DECC proposes to issue its response to the consultation and lay the regulations in early 2015 to provide the industry certainty on what the regulations will require.

Context

The Energy Act 2011 places of duty of the Secretary of State to bring into force regulations on minimum energy efficiency standards. Domestic and non-domestic private sector Minimum Energy Efficiency Standard Regulations must be in force by 1 April 2018.  This will mean that any property within scope of the regulations with an E or above rating will be in compliance with the regulations, and properties below this standard must install those measures required to reach an 'E' EPC rating. This is a critical issue for landlords with portfolios of private rented properties that may need energy improvements.

Domestic private rented sector Tenant's Energy Efficiency Improvement Regulations must be in force by 1 April 2016 and will empower tenants to request consent for energy efficiency measures that may not unreasonably be refused by the landlord.

Non-domestic private rented sector

The commercial property industry is a significant contributor to the UK economy   According to the IPCC the built environment contributes to just under 12 percent of the UK’s carbon emissions and this offers the greatest opportunity for cost-effective emission mitigation of any other sector. To achieve the legislative targets CO2 emissions need to be ‘close to zero’ by 2050.   Information on the EPC register shows that there are many opportunities to drive energy efficiency in existing stock. However, improvements have not been fully realized to date due to market, legal, and operational barriers. Key to this is the split between incentive and benefit – where the cost of improvements traditionally falls on the landlord while the tenant reaps the benefit in energy savings.

The government envisages that the Green Deal – a financing mechanism where the costs of retro-fit are financed by a credit and then repaid in installments through the electricity bill – will allow landlords to pay energy efficiency improvements without an upfront financial cost as tenants repay the costs through their energy bill repayments. How effective the Green Deal initiative will be remains to be seen.  The Green Deal Finance Company is not currently offering finance on non-domestic properties, but will keep it under review. However, DECC acknowledges that the Green Deal will not be sufficient to meet targets and regulatory intervention, well posted in advance, is required.

DECC’s proposals for the non –domestic minimum standard regulations

The consultation sets out the government’s policy and asks for comment on 15 questions. The government’s proposals focus on the least energy-efficient properties (those with an EPC rating of F or G).  The regulations will not apply to those properties which have an EPC rating of A-E (about 80% of the non-domestic properties), nor owner-occupied property. DECC propose and seek views as follows:

  • The minimum standard regulations  will only apply to those leased non-domestic properties which also require an EPC
  • where properties have an EPC rating lower than E, landlords will only be required to make improvements where there is no up-front cost to them (e.g. through Green Deal financing)
  • where landlords do not use the Green Deal, DECC are seeking comment on whether they should be able to demonstrate compliance by upgrading those parts which pay for themselves by savings on electricity bills within a prescribed area - no examples are given but one example would be to common parts over which the landlord has control
  • landlords will not be required to carry out improvements where third party consent is required, but is withheld
  • whether there should be an exemption where an independent valuation demonstrates improvements to meet the minimum rating  will result in a net material reduction in the property’s value
  • whether   exemptions for the above reasons would expire after a reasonable period (the government proposes 5 years or earlier where a tenant vacates a property and the reason for exemption was withholding of tenant consent)
  • Properties newly let from 1 April 2018 will need to meet the minimum energy standard set by the regulations.  There is a proposed long stop date of 1 April 2023 whereby all let properties whether under new leases or not, will need to comply or be able to prove an exemption
  • whether the government should commit to a forward trajectory increasing the minimum standard  over time to inform business over the longer term
  • trading standards officers will enforce the regulations and DECC seeks comment on what form enforcement, penalties and appeals should take

The full list of consultation questions can be found here. The non-commercial working group report also published by DECC on the 22 July 2014 is intended to inform the consultation.  Members of the working group were drawn from   key industry stakeholders including leading landlord, tenant, environmental and property professional organizations.

See the full report

Domestic private rented sector

One in five houses is privately rented and many of these homes have the lowest energy efficient ratings - an EPC rating of 'F' and 'G'. The Government proposes to set the minimum energy efficiency standard for private rented properties at an 'E' EPC rating by 1 April 2018. This will mean that any property within scope of the regulations with an E or above rating will be in compliance with the regulations, and properties below this standard must install those measures required to reach an 'E' EPC rating. This is a critical issue for landlords with portfolios of private rented properties that may need energy improvements particularly as Green Deal finding has been suspended: See our article DECC closes Green deal Home improvement Fund following overwhelming demand earlier this week.

DECC’s proposals for the domestic minimum standard regulations

The consultation sets out the government’s policy and asks for comment on 28 questions. Key issues include:

  • whether the proposed scope include all the buildings and tenancies that should be covered by the tenant’s improvements regulations
  • what, if any, additional funding options could be used by a tenant when seeking consent for energy efficiency improvements in addition to the Green Deal finance arrangements, ECO, grant funding and a tenant’s own sources
  • process for when and how a tenant request for consent for energy efficiency improvements is made
  •  whether the First-tier Tribunal is the appropriate body to hear and determine appeals about decisions regarding non-compliance with the minimum standard regulations.

The full set of consultation questions can be found here:

The domestic working group was comprised of key landlord, tenant, environmental and professional organizations.  Their report is intended to inform the consultation but does not represent the DECC’s views.

The full report can be found here.

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