EPCs 10 years on – time to reassess their impact?

It’s a decade since residential properties in the UK were first required to have a ten year Energy Performance Certificate (EPC) before they could be sold or let. As the ten year anniversary approaches, the time has come for the early starters to be reassessed.

Originally part of the Home Information Pack (HIP), loved by a few and loathed by many - but which would have been useful if implemented as originally intended, the EPC survived when the HIP requirement was abandoned in 2010.

At first regarded as a bureaucratic irritation rather than a necessity, the EPC gained more traction recently when the introduction of Minimum Energy Efficiency Standards (MEES) meant that from April 2018 it will be difficult, but not impossible as some suggest, to let a property with an Energy Efficiency Standard below Band E on its EPC. There are exemptions that can be registered, but these are subject to re-application every five years, and it is by no means certain that this will continue ad infinitum. Indeed, it’s expected that the rules will become tougher and eventually exclude Band E properties.

With that in mind, it could be beneficial to review the EPC for your property even if you are not yet required to replace the original purchased 10 years ago. In fact, some landlords are relying on an EPC that exists from when they purchased the property, and therefore was provided by the vendor rather than themselves.

Where a property is Band F or G, but also for those with a low score in Band E, having a new EPC assessment could make the difference between 10 years of worry-free letting and the stress of not knowing whether an exemption granted in time for April 2018 will be renewed in 2023.

The energy assessor who provides the EPC will check for items such as double glazing, boiler efficiency, radiators, and insulation for the hot water tank, walls, and loft. The results are fed into a software program that produces a figure for the EPC, which in turn determines the banding in some instances. The assessor can override the program if there’s visual or written evidence that standards are higher than the software assumes.

Where you are borrowing to fund the purchase of a lettings property, your lender may want confirmation of its energy efficiency standards, especially where the current banding could make it borderline in the future and therefore bring a possible diminution in its asset value. Therefore, taking care of what was once regarded as a merely administrative necessity could pay dividends.

Certain classes of building are exempt from the need for an EPC. As far as residential landlords are concerned, the principal category concerns those that are officially listed as of historic interest.

From April this year, tenants have had the right to ask their landlords to approve their installation of energy efficiency measures. Originally this would have fallen under the Green Deal - a scheme that already had drawbacks before its funding was withdrawn because of low take-up.

Improvements were supposed to be funded through energy bills applicable to a property, provided the benefits of the improvement outweighed the cost of making them.

But it’s much better to make these improvements independently, as part of an investment in your lettings property, rather than using a scheme that allows tenants to take charge, as this may ultimately restrict which energy company you can use in the future, as not all energy providers are involved. While this may seem insignificant, consumers are growing more energy aware and may resent having their opportunities to switch curtailed.

My recommendation is that where tenants ask to carry out an energy survey, you allow it to go ahead, but then consider whether or not it’s to your advantage to implement the improvements yourself so you retain control. It may also be that the work can be completed at lower cost than the tenant’s chosen contractor offers.

Lisa Simon, 

Partner Head of Residential Lettings

T: 020 7518 3234 

E: lisa.simon@carterjonas.co.uk

Don’t fall foul of new residential tenancy rules

Don’t fall foul of new residential tenancy rules is the message coming loud and clear from the Central Association of Agricultural Valuers’ spokesperson, Kate Russell.

With rental income from cottages and converted farm buildings becoming an increasingly important financial lifeline for many farmers, they need to take heed of these latest developments.

In the main, the new rules are being put in place to protect tenants from unfair treatment but landlords who may have behaved perfectly reasonably can be caught out by the new legislation.

Probably the most important new rule in 2015 was the introduction of prescribed legal requirements for Section 21 notices, which have to be served to terminate an Assured Shorthold Tenancy.

For tenancies beginning after October 1, 2015, landlords may not serve a Section 21 notice to terminate a tenancy unless the tenant has been provided with:

•    A free and valid Energy Performance Certificate (EPC)
•    A copy of the gas safety certificate for the property where appropriate and
•    A copy of the government’s guidance note: How to Rent: A Checklist for Renting in England

Other new rules include Right to Rent checks.  Since February 1, 2016, landlords must check that their tenants (and any adult living with them) have the legal right to rent in the UK. Penalties for failure to conduct such checks can result in fines of up to £3,000.

In order to comply, landlords or their agent must check original documents such as a passport or birth certificate in the presence of the document holder and then keep copies of them for a year after the tenancy ends.

In addition, all landlords must ensure there is a smoke alarm on each storey and a carbon monoxide alarm in every room with a solid fuel burning appliance, including wood burning stoves, open fires and Agas.  Failure to comply with these rules, which cover both residential and agricultural tenancies could ultimately lead to a fine of £5,000.

Then there are restrictions on landlords serving termination notices in response to tenants who may have complained about the condition of the property and the Landlord has failed to respond adequately.

And from April 1, 2016, a landlord cannot unreasonably refuse a tenant’s demand for energy efficiency improvements if they can be carried out without cost to the landlord.  While from April 1, 2018, a domestic private rented property cannot be let on a new tenancy if it has an EPC of F or G. This will also apply to existing tenancies from April 1, 2020.

However, where a property does not comply, landlords who have done everything they can to improve its energy efficiency (at no cost to themselves) can apply for a five-year exemption every five years.

So the message is that regulations concerning renting out properties are becoming more and more stringent and landlords either need to get clued up on the new legislation themselves or employ professional help to ensure their rental properties do not become an unexpected financial burden.

James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk

Warm-hearted tenants are a better bet

It’s not long until changes come into effect regarding the energy efficiency of let properties.

From April next year, tenants will have the right to ask their landlords to approve energy efficiency measures under the Green Deal and while this may seem attractive the scheme has its drawbacks, not least that the Government has just decided to stop funding the Green Deal Finance Company.

Green Deal improvements were funded by repayments through the energy bills applicable to the property. If the benefits of the improvement outweighed the cost of making them then they suited Green Deal requirements.

But it was always much better to make these improvements yourself as an investment in your let property rather than use the Green Deal scheme which may have restricted which energy companies tenants could use in the future as not all providers were part of the scheme. While this may seem insignificant, consumers are growing more energy aware and may have resented having their opportunities to switch curtailed, particularly as a measure in the recent Budget was for switching to be made possible within 24 hours.

At Carter Jonas, approximately seven per cent of our lettings properties fall into EPC Bands F and G, possibly limiting their lettings potential. Landlords therefore need to start paying attention to the need to upgrade. It’s true that exemptions from the new rules will apply and all listed homes fall outside the EPC requirement but it’s never a good idea to rely on a loophole that can subsequently close.

My recommendation is that where tenants ask to have an energy urvey done you allow it to go ahead but then consider whether or not it’s to your advantage to implement the improvements yourself so you retain control. It may also be that the work can be completed at lower cost than any Green Deal scheme contractor may have offered and there was always the right to refuse improvements that were not cost effective.

Where listed buildings are concerned, it’s worth bearing in mind that the feature that has led to the listing may not actually be within the living space.

Garden walls and dovecots are among the many reasons a property can be listed and the doves are less likely to be worried about the energy-saving potential than the tenants!

If this affects you, then see how you can improve your property’s energy performance independent of anything a tenant may want to do. The appeal of living in a listed building is sufficient for many people to sign a tenancy agreement without question.

But how much better is it if your tenant not only feels warm-hearted towards the building because of its listing but also is actually physically warmed by its energy-saving features?

Lisa Simon, 

Partner Head of Residential Lettings

T: 020 7518 3234 

E: lisa.simon@carterjonas.co.uk

What the energy efficiency proposals really mean for the PRS

With apologies to Mark Twain for the paraphrasing, reports of the demise of poorer-rated, less energy-efficient domestic rental properties have been greatly exaggerated.

Twain was referring to the premature publication of his obituary notice. He was happily able to tell the world he was still alive.

Publication by the Department for Energy and Climate Change (DECC) of the Private Rented Sector Energy Efficiency Regulations (Domestic), which sets out the views of the Government on proposals for energy efficiency in the private rented sector (PRS), led to immediate reports that properties with EPC ratings (placing them in Bands F and G) could be doomed.

On the face of it, that’s what the document says. But read it and the story is less pessimistic. Owners of such properties should not give up hope.

The basic premise of the document, a response to a wide consultation on making let properties more energy efficient, is that from April 1, 2016, domestic tenants will have the right to request consent to make energy efficiency improvements and landlords would need to respond within a month under the regulations that have been laid before Parliament.

The minimum energy efficiency standard applied to all categories of domestic private rented property will be set at E energy performance, in line with the non-domestic sector. From April 1, 2018, the regulations will apply upon the granting of a new tenancy to a new or existing tenant, extending from April 1, 2020, to all privately rented property within the scope of the regulations.

But, crucially, there is the ability for landlords to seek exemptions. The essential paragraph reads:

Where a landlord considers an exemption applies allowing them to let their property below the minimum energy efficiency standard, the landlord will need to provide such evidence to a centralised register, the “PRS Exemptions Register.” Landlords may be required to submit relevant evidence and details of their exemption to the Register. The Government may use this information to assist local authorities in targeting their enforcement activity.

There will be a number of safeguards to ensure that only appropriate, permissible and cost effective improvements are required. Landlords will be eligible for an exemption from reaching the minimum standard where they can evidence that one of the following applies:

- They have undertaken those improvements that are cost-effective but remain below an E EPC rating. Cost effective measures are those improvements that are capable of being installed within the Green Deal’s Golden Rule. This ensures that landlords will not face upfront or net costs for the improvement works.

- They are unable to install those improvements that are cost-effective without upfront cost because the funding entails Green Deal finance, and they or their tenant fail the relevant credit checks.

- The landlord is required by a contractual or legislative obligation to obtain a third party’s consent or permission to undertake relevant improvements relating to the minimum standard, and such consent was denied, or was provided with unreasonable conditions.

- The landlord requires consent, and the occupying tenant withholds that consent.

- Measures required to improve the property are evidenced by a suitably qualified independent surveyor, for example from the Royal Institution of Chartered Surveyors (RICS), as expected to cause a capital devaluation of the property of more than 5%. Only those measures that are expected to cause such devaluation would be exempt from installation.
- The regulations will also include specific protections relating to wall insulation improvements as an additional safeguard for the minority of situations where such insulation may not be appropriate. There will be no requirement to install wall insulation under the regulations where the landlord has obtained a written opinion from a suitably qualified person or from the independent installer engaged to install the measure advising that it is not an appropriate improvement due to its potential negative impact on the fabric or structure of the property (or the building of which it is part).

The long term hope is that the ratio between the cost of implementing change in comparison to the value of savings to be made in the domestic energy bill will naturally adjust to the point where they coincide in the vast majority of cases. The recent fall in oil prices, and consumers’ hope that domestic energy prices will follow more closely, might damage these prospects in the short term.
However, energy prices will inevitably rise again in tandem with technology improving to make energy efficiency more easily achievable at affordable costs.

Coupled with this is the knowledge that no Government will want to willingly remove otherwise good housing stock from the PRS. The political colour of the UK Government at Whitsun is likely to be very different from that of the Government on the May Day bank holiday. But whether the predominant shade is blue or red, and whatever fringe parties are tugging at the sides of the wheel to get their own policies into play, neither major party will steer a course that sees homes with lower energy efficiency ratings removed from the PRS in the foreseeable future.

Labour will not want to deny people perfectly good homes when voices are already loudly raised about the amount of good housing stock that stands empty. The Conservatives, with their commitment to austerity, will not want to fund the replacements for these homes from the public purse. Of course, nobody will get away with using the regulations for letting seriously sub-standard property and nor should they.

The Government is promising guidance between now and the implementation of the regulations from April 1 next year and there’s a requirement to review the operation and effect of them at no less than five yearly intervals, with the first in 2020 by which time it will have evidence about the progress and effectiveness of the regime.

Far from being a portent of doom for domestic rental properties in Bands F and G, look on the proposals as a long term fitness regime for the less able to be brought up to peak physical performance and with the proviso that those who can’t won’t be relegated to the scrap heap.

Details of the legislation can be found here.

Lisa Simon, 

Partner Head of Residential Lettings

T: 020 7518 3234 

E: lisa.simon@carterjonas.co.uk

Revenge evictions bid fails - but may return

You may remember in an earlier Clearer View we raised the issue of gas safety and in that article mentioned a Private Member’s Bill put before Parliament by Liberal Democrat MP Sarah Teather.

The Government agreed to back her Bill and allow it time to progress through the essential Parliamentary stages – but its second reading on November 28 was talked out by two Tory MPs who spoke for more than two hours until the Bill ran out of time.

However, it’s reported that Housing Minister Brandon Lewis is seeking a way to insert a clause to prevent so-called “revenge” evictions into the Deregulation Bill in January.

The Bill sought to ban such evictions by landlords of tenants who had requested repairs – once a repair had been requested, the Bill would have made it impossible to serve a Section 21 notice for repossession.

This restriction would also have applied where no valid gas safety certificate exists or where the tenant has not been given an EPC for the property but its failure in Parliament is no reason to avoid ensuring all necessary paperwork is valid and up to date.

EPCs are arranged at the point of marketing by all our branches. Our property managers arrange gas safety certificates for our managed properties and it remains a legal requirement for Houses of Multiple Occupation (HMO) to have a carbon monoxide alarm fitted. However, we advise all landlords to consider the installation of alarms to protect the occupier and help prevent any legal action being taken against a landlord.

Lisa Simon, 

Partner Head of Residential Lettings

T: 020 7518 3234 

E: lisa.simon@carterjonas.co.uk

Put energy into improvements now

The Energy Act 2011 states that from April 2018 (at the latest), it will be illegal to rent out residential or business premises that do not reach a minimum standard of energy efficiency.

Although it’s not yet clear, the Government seems to be indicating that the lowest acceptable energy rating on an Energy Performance Certificate should be Band E. Landlords who have F and G rated buildings (and possibly some in Band E) will need to actively attend to improving their energy efficiency.

There are circumstances where no EPC is needed, for instance when a building is listed (this applies if it shows up on a search of the English Heritage database or the Welsh equivalent list at CADW) or where certain facilities are shared between tenants.

Guidance from the Department of Communities and Local Government can be downloaded at here.

It makes sense to improve efficiency sooner rather than later, when all the procrastinators will be in the same frenzy and improvement firms may well be cashing in by raising charges.

Carrying out fresh assessments now, particularly where the EPC is Band E, and then factoring in the costs of upgrades where necessary, possibly spreading them over a period, will help limit the financial impact of carrying out the work. It may also be that as time goes on some energy efficiency grant funds’ availability diminishes through over-use or cuts in funding – at present some improvements may come within the scope of the Green Deal.

Your accountant may be able to advise on the best way to make use of capital allowances in addition to planning the effects on your cashflow. You should also bear these changes in mind if you are looking to expand your portfolio through buying more properties, some of which may have EPC assessments that are already several years old.


Lisa Simon, 
Partner
Head of Residential Lettings
T: 020 7518 3234
E: lisa.simon@carterjonas.co.uk