Landlords: are you letting one of the 380,000 homes which will become unlettable?

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As early as next year there are changes coming into effect whether impact how low energy efficient houses in the private rented sector can be legally let, and the financial costs associated with these changes could prove to be a nasty shock for landlords.

Why have you not heard of this before? Well, for those of you who remember the Right Honourable Chris Huhne MP, he is famous for much more than the infamous speeding ticket scandal and his subsequent divorce.

In May 2011 the then Secretary of State for Energy and Climate Change announced: “From 2016, any tenant or their representatives asking for their landlord’s consent to make reasonable energy efficiency improvements cannot be refused. From 2018, the rental of the very worst performing properties—those rated F and G—will be banned through a minimum energy efficiency standard.” Unfortunately his statement coincided with his ex-wife, Vicky Pryce’s exposé in the Mail on Sunday, so this important piece of news got swept under the media carpet, until now that is.

What does this change mean for you?
From 2016 tenants who ask for their landlord’s consent to make reasonable energy efficiency improvements may not be refused. Reasonable improvements for properties are those outlined in Green Deal Assessments, EPC’s or qualified surveyor reports and can include things like installing double glazing or loft, floor or wall insulation.

Fast forward another two years to 2018 and all private landlords will need to ensure that their rental properties reach a legal Minimum Energy Performance Standard (MEPS). Those homes that currently have an ‘F’ or ‘G’ energy efficiency rating (the lowest level) will need to take steps to boost their property’s energy efficiency into the ‘E’ category. If landlords do not take all reasonable steps to ensure that their property meets the minimum standard outlined in the Energy Act 2011, and upcoming regulations, it will be illegal for them or a letting agent to let the property.

One in ten PRS homes currently fit into bands ‘F’ and ‘G’ which means these changes will impact around 380,000 homes nationwide.

The changes will need to be implemented prior to April 2018 unless the home is exempt under secondary legislation or the landlord has used all available funding or subsidies to make reasonable improvements but is still unable to increase the property’s energy efficiency rating to ‘E’.

PRS lags behind
The private rented sector (PRS) currently has a comparatively poor record in energy efficiency and we welcome with open arms any measures that help reduce the escalating problem of fuel poverty in the UK. Currently the sector has the highest proportion of least energy efficient homes – 5.8% of G rated properties compared with 3.4% in owner-occupied homes.

A recent study from the Department of Energy and Climate Change found that making energy saving improvements can increase a home’s value by 14% and, we would argue, a warmer more environmentally friendly home could attract a higher rent, as well as improving the long term asset growth.

What’s next?
Get to know your EPC
Energy Performance Certificates (EPCs) are not only going to tell you a property’s current banding, but what improvements you can make to improve that banding. Possible improvement measures include cavity wall insulation, loft insulation, draught proofing, upgrading the gas boiler and installing more sensitive heating controls.

The cost of these improvements will obviously be a factor in any equation but it is worth noting that landlords will only be liable to carry out changes that are cost effective. The cost of energy efficiency improvements will differ between type of building, age and its current specification but it’s important to plan ahead and start budgeting and thinking about the necessary works.

Don’t forget the Green Deal
Under the Green Deal, landlords can make energy efficiency improvements without having to pay all the costs upfront, with tenants repaying the cost of the measures through their energy bill savings. Importantly, where the tenant pays the electricity bill, the landlord must seek permission from them to take out Green Deal and will need to alert new tenants.

HMOs? Watch this space
There is a loophole in current regulations which means that houses in multiple occupation (HMOs) are excluded from MEPS. However, a bill is currently making its way through Parliament (the second reading is happening this month) which is set to tackle this loop hole. With the private rental sector now the second largest tenure in the UK, this is a significant regulatory gap, and one which HMO landlords should keep themselves informed of.

A fluid landscape
All landlords and letting agents must keep a close eye on MEPS developments in the future. Although it is widely expected that the ‘E’ banding will remain the minimum rating, this may change in the future as more emphasis is placed on energy efficiency.

For further information please visit independent sites such as that of the Department of Energy and Climate Change or contact the team at Spark via www.sparkenergy.co.uk.

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