Complying with the new energy efficiency legislation (EPC test)
As if landlords didn’t have enough paperwork to worry about, as of the 1st April 2018, things got even more complicated. The minimum ratings for Energy Performance Certificates (which have been mandatory for some time) got a lot tougher, and now any rental property must achieve at least an ‘E’ rating for it to be rented out. Whereas before this only applied to new tenancies, now, it covers existing rental agreements too.
That means that even if your tenants have been in your property for years, the house or flat will still need to conform to the new EPC minimum standards for you to be able to continue to rent the property to them.
This shift in legislation has caused real anxiety among tenants, who are deeply concerned that they could be forced out of houses that they are quite happy to remain in, purely because of what seems like an arbitrary movement of the goalposts by the government. However, for tenants that are living in cold, damp housing, the new legislation is a godsend, as it forces landlords to ensure their properties are fit for human habitation.
What are the new rules?
The Energy Act 2011 came in to ensure that rental properties (and new builds) are as energy efficient as possible. This includes everything from insulation to the type of heating used. The new legislation now means that all occupied domestic properties must achieve a rating of at least ‘E’ by 2020.
EPC reports are mandatory for all domestic landlords, and are often part of the package for sellers, as a higher energy rating can make quite a difference to the asking price for a property.
It also means that properties with a higher rating are more efficient and cheaper to run, which in turn makes them much more attractive to potential tenants (or buyers).
What do the EPC inspections cover?
An EPC inspection is a ‘top to bottom’ inspection of the thermal efficiency of a house, and will cover everything from the thickness of the insulation in the loft through to under-floor heating, cavity wall insulation, and even if the property has curtains or not. Inspections are carried out by registered performance assessors, and normally take around an hour or so.
The assessor then produces a full report, listing the property’s rating, and various ways in which the rating could be improved. This can include everything from installing smart storage heaters to putting in thicker loft insulation, or even swapping old-fashioned lightbulbs for energy-saving ones.
Is this all good news for tenants?
While the tighter regulations mean that, in theory, properties should be warmer, more comfortable, and cheaper to run, there are concerns that it could become a ‘tenant tax’ as landlords pass on the cost of bringing the property up to spec. In very old properties (especially those in rural areas that use different building materials such as cob), there is a concern that no matter what the landlord does, the property will not achieve an E rating in time to comply with the legislation cut-off point in April 2020. Theoretically, that could mean that some tenants could be evicted through no fault of their own, purely because the house doesn’t measure up to the government’s new thermal efficiency standards.
Some landlords could be spending as much as £5,000 on improvements, which could in turn result in a steep increase in rents. While more thermally efficient homes may be more attractive to tenants and therefore command higher rental value, it’s the 330,000 tenants who are currently in rental properties that are unable to achieve that coveted E rating that could be hit with the increased cost of bringing a home up to spec.
What happens if you don’t get that minimum rating?
If you end up with a rating below E for a property then from the 1st April 2020 you will not be able to rent it out, even if you already have tenants in the property. Not only does that impact the landlord’s ability to have rental revenue coming in from the property, but it could mean that the tenants have to leave the property, even if they have a rental agreement in place. Failing to make the required changes to bring the property up to spec could also result in a £4,000 fine.If you’re a landlord and are worried about complying with the new EPC specifications, talk to a property law expert today to get clear, impartial advice.
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Property eBrief 14 March 2019