We are certain that all of our clients are now familiar with the requirement to provide an Energy Performance Certificate for any building that is being sold or let and furthermore are aware that the EPC Rating must be put on the property particulars and no marketing can commence until that Performance Certificate has been obtained.
What many clients may not be aware of is the fact that the Energy Act 2011 requires the Government to bring in a Regulation which deals with the concept of a Minimum Energy Performance Standard (MEPS). This has to be brought in by April 2018 at the latest.
MEPS will affect private landlords of both residential and commercial properties. In this article we will endeavour to indicate the potential effects of these minimum requirements on property which our clients have either let already or are proposing to let or sell.
There will be some exemptions but at this stage we do not know what these will be. It is likely however to include Listed buildings and certain types of landlords.
The enforcement of the Minimum Standards will be dealt with by the local trading standards offices and the punishment will be a penalty fine. At this stage there is no guidance of the level of fines but it has been suggested that the fine could be linked to the rent payable for the premises. In addition to fines the landlord is also likely to be served with an Energy
Efficiency Improvement Notice requiring works to be undertaken within a set period of time possibly 6 months. Unfortunately it is not clear at this time what the limitation will be.
Although there has been no formal announcement, the consultation document gives clear guidance that the Minimum Standard will almost certainly be an E rating. Anything with an F or G rating will fall within the criteria. We are informed that draft legislation which hopefully will provide some much needed clarity will be produced during the early part of this year.
Which must be of concern to all owners of property is the fact that the consultation document only suggests that new lettings will be caught by the MEPS as at April 2018. However it has been suggested the hard date of 01 April 2023 will make it imperative that all premises (even where Leases are in place which were granted before April 2018) will be caught by the Act
Various points need to be considered by the client whether a landlord or a tenant. For clarity we set out some of these hereunder:-
1. Can an existing tenant be required to undertake works necessary to bring the property up to the standard required under the clauses found in most leases dealing with compliance or statutory obligations?
In general terms it would appear as if the Energy Act does not oblige anyone to carry out works but it simply prevents a letting until such works are undertaken.
2. Do Tenants and landlords need to look carefully at whether the standard repairing clause in the lease makes it obligatory for the tenant to bring it up to the required standard?
Any drafting of a new lease will be crucial and the tenants liability is normally clearly set out in the wording of the clause. It of course all depends on whether the works required are repair or not.
Tenants may well wish to make it clear that they are not liable under the lease, which must be worded accordingly, to bring the premises up to the significant EPC standard.
3. Is it certain whether the landlord can carry out the necessary works to a property under an existing lease to ensure that he is not in breach?
It is essential that he gives consideration to this because if a rent review occurs and the property does not comply with the minimum requirements then it may be detrimental to any ability to implement the rent review.
One needs to look at the possibility of the landlord recovering any necessary work costs from the tenant through a service charge. In any new lease it is quite likely that a landlord would seek to negotiate the ability to recover all of the costs and therefore the drafting must ensure that a tenant cannot try and avoid this liability.
4. What is the position on Subletting?
The request for subletting after 2018 may be an advantage to a landlord because the Act restricts subletting as well and therefore if a tenant of a property that has an F or G Rating wishes to sublet they may need first of all to bring the property up to the required standard.
It is, therefore, important that landlords review their portfolios now to determine which of their properties, with EPC ratings F and G, will need either a new lease to be granted after April 2018, or will have an existing lease continuing beyond 01 April 2023. Even if a lease expiries before April 2018 it is essential that landlords assess what works will be necessary to enable the property to be let.
It must be emphasised that the above article merely skims the surface of the proposals under the Energy Act. In our opinion it is vital that landlords and possibly tenants establish what the current EPC Assessments are on properties they rent out or occupy. It is also essential that once this information is available and if properties are within bands F or G then advice is sought from their surveyors to establish the likely liability and method and cost involved in bringing the premises up to the required standard.
[Material reproduced with the agreement of John Daborn of Drew Pearce]