News & Insights

Landlords are being warned to consider the energy efficiency rating of their rented property, as new legislation means that properties that have a low energy efficiency rating may be restricted from being let until this has been resolved. This could cause financial hardship for landlords in terms of lost rent and potential penalties and applies to both commercial and residential property.

This has arisen as a result of the Government’s aims is to promote green issues and limit energy wastage. In an effort of tackle this, the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 are intended to ensure that all let properties meet a minimum energy efficiency level.   This is defined by reference to Energy Performance Certificates, which contain band ratings from A to G, with A being the most efficient and G the least. Under the regulations, the minimum requirement for let property will be band E.

The landlord of any property that has an EPC rating of F or lower will be restricted from granting a new lease or renewing an existing one after April 2018. From April 2023 this will also affect property that is already let out under a lease, and could cause both a financial penalty for a landlord whose property does not meet the minimum standard and prevent the lease from continuing.

As with all legislation, there are exemptions to this requirement. These include situations in which all works to improve the energy performance have been undertaken and the minimum level has still not been reached and when third party consent would be required to carry out the improvements works and this cannot be obtained. If an exemption applies, the landlord must register on the PRS database. The exemption lasts for five years and cannot be transferred to a new landlord. Any buildings which are also exempt from requiring an EPC will also not fall within these regulations.

This may also cause issues with lenders, as the majority of valuations for commercial property will be based on rental income. If the property suffers from a low EPC rating, which will restrict it from being rented out until this is remedied, this will affect the valuation and potential finance offered.

Current landlords also need to review their leases to ensure the tenant cannot carry out any works that may reduce the energy efficiency of the property. Landlords should also be wary of allowing tenants to obtain new EPC’s as modern providers are bound by more stringent criteria and the tenant’s provider may not be as experienced as the Landlord’s, which may result in a lower EPC rating than previously obtained.

As the financial penalties for failure to comply with these regulations can vary from £5,000 to £150,000, in addition to loss of rent and reduction of resale value, it is vital to check the EPC ratings of current properties and potential purchases, so you will be aware of any problems before the implementation date of April 2018.

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.