MPs promise warm reception for your energy views

The All Party Parliamentary Group for the Private Rented Sector is holding an inquiry into the energy efficiency of private rented housing.

From April 1, 2018, all privately rented properties will be required to have a minimum energy performance rating of E on an Energy Performance Certificate. There are some exemptions, but these will have to be registered and it’s uncertain how long they will continue.

The MPs’ inquiry follows the government’s decision not to renew the Landlord Energy Savings Allowance, originally intended to encourage landlords to improve the energy efficiency of their properties. It was dropped because of low take up. The government has also stopped funding the Green Deal, the original vehicle for helping tenants fund energy efficiency improvements to their homes.

The MPs will consider “the impact of recent policy developments on energy efficiency improvements in the private rented sector and make recommendations about what new policies could be developed to support the sector within the government’s overall ambitions for household energy efficiency and given its efforts to ensure value for taxpayers’ money.”

Their chairman, Oliver Colville MP, says the inquiry will look to develop new ideas that support landlords in meeting their new target, save tenants money on their bills, and help improve standards.

The MPs are all those with an interest to send written submissions of no more than 1,500 words to Ed Jacobs on admin@prs-group.org.uk by Friday, October 23.

Lisa Simon, 

Partner Head of Residential Lettings

T: 020 7518 3234 

E: lisa.simon@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

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

Carter Jonas' Energy Index

The Energy Index 2013 has just been published by Carter Jonas’ research team and I think this will make interesting reading to farmers, landowners and anyone with a general interest in the subject of onshore renewable energy technology.

The report gives a brief over view of the five principal technologies which are anaerobic digestion, biomass heating, solar photovoltaics, hydroelectric power and wind and then analyses how they perform against a variety of measures. These include efficiency, cost of installation, annual operating costs, development timeframe, planning risk and the financial support mechanism of each technology type.

The key objective of the index is to rank the various technologies against the various measures to help landowners and farmers through the difficult decision making process as to which technology may be the most suitable for them to pursue. Clearly the physical characteristics of every site are different and these will often be the most significant factors guiding a landowner as to what opportunities may be available but I would suggest this index will be of interest to anyone who is at the start of this thought process.

The energy sector is clearly high on the political agenda and at the time of writing we await an anticipated announcement in Chancellor’s autumn statement on potential changes to the manner in which green levies are to be raised in order to fund renewable energy developments. Clearly if these changes result in significant cuts in the subsidies which are paid to encourage certain types of renewable developments this could have a significant impact on the viability of certain technologies.

Having said that, the renewable energy sector and its costs of development and pricing structure are already changing; there are a number changes to the financial support mechanism which are in the pipeline and forthcoming government announcements may result in further changes. It is uncertainties such as this which last week saw the shock announcement that RWE Innogy has decided to cancel the proposed development of the so called “Atlantic Array” which was planned to be a 240 turbine wind farm located off the North Devon Coast.

In light of this volatility it is Carter Jonas’ intention to update their Index on an annual basis although will be worth keeping in close contact with their energy team to ensure you keep abreast of changes as they happen because waiting a year for an update in this fast moving industry will be too late.

Anyone interested in receiving a copy of the index should contact James Stephen on james.stephen@carterjonas.co.uk or they can download a copy from the Carter Jonas website: www.carterjonas.co.uk

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