This article will outline the brief History, the role of surveyors, who is affected, financial risk, exemptions, and the future of EPC ratings.
New Minimum Energy Efficiency Standards (MEES) have come into force on the 1st April 2018 in England and Wales, making it illegal for a landlord to renew a lease or let their property if their Energy Performance Certificate (EPC) rating is F or G.
EPC’s were first introduced in England and Wales on 1st August 2007 as part of Home Information Packs (HIPs) for domestic properties with four or more bedrooms and over time, smaller properties. When the requirement for HIPs was removed in May 2010, the requirement for EPC’s were still in place. A certificate for rental properties are valid for 10 years and have been required on a new tenancy commencing on and after 1st October 2008. This is a result of the European Union Directive (2002/91/EC relating to the energy performance of Buildings Regulations 2007 S.I. 2007/991.) transposing into British law by the Housing Act 2004.
Role of Surveyors
Surveyors are crucial in the assessment of MEES. When undertaking technical due diligence for investors and occupiers, they may review the EPC to determine whether the property is at risk or is not compliant with the standard. This applies to E, F and G rated properties.
Energy performance can be considered and improvements incorporated in the scope of works, when involved in a maintenance and refurbishment project. Quite often this could be attained at little or no extra cost, since it will be part of a planned package of works.
When reviewing tenants’ alterations and fit-outs, surveyors pay close attention to the proposals to make sure that they do not have a detrimental effect on EPC ratings. This is also the time when surveyors have the chance of to identify any opportunities to improve a rating.
Who is affected?
EPC’s affect Domestic and Non-Domestic properties if they are rated F or G, deeming it unlawful to let, sublet or renew a lease on a property that fall under these categories.
The MEES Regulations may change the balance between tenants and the landlord. There is nothing stopping existing privately rented tenants from having a new EPC Carried out effective from 1st April, which would supersede the current APC. Otherwise, an EPC Certificate is valid for ten years.
The introduction of MEES represents financial risk for landlords which of whom fall into the EPC F or G rating. The financial risk is great, particularly for landlords due to the potential loss of income, irrecoverable capital expenditure on improvements and penalties for non-compliance, which can range from £2,000 to £150,000.
Re-developers are also at risk; although MEEs do not apply to sales, purchasers are paying more attention to EPC ratings and it may be difficult to sell substandard or properties at risk of falling into the F and G rating.
Exemption of EPC needs to be registered before the 1st April 2018 and lasts for five years. To qualify, a landlord must list the property on the public Private Rented Sector Exemptions Register. It should be noted that exemptions are not transferable, meaning if the property is resold to another owner or landlord, another exemption must be registered and applied for.
A temporary exemption exists when a substandard property is sold, allowing the new owner or landlord six months to comply. This may prove to be costly and time consuming for complex properties.
Exemptions arise when;
- All relevant energy efficiency improvement works to the building fabric and services that have a simple payback period of seven years or sooner have been undertaken. The evidence must include copies of three quotes from qualified installers – which may present difficulties if the installers realise there is no prospect of securing work.
- A landlord can’t obtain third-party consent for improvements e.g. the Planning authority, tenant or superior landlord.
- An independent surveyor determines that energy efficiency improvements such as providing thermal insulation to the internal face of the external walls would devalue the property by 5% or more.
The Future of EPC’s
On 1st April 2020, the regulations will become stricter as they will apply to all domestic properties with an F or G rating. From April 2023, they will apply to all such substandard properties. A civil penalty of up to £4,000 will be imposed for breaches.
With the help and support from a chartered surveyor, and a recognised energy assessor, the introduction of the new MEES can be far simple.
Get in touch with Quatrefoils for any enquiries.
Written by Maria Gerasimova on the behalf of Quatrefoils