On 22nd July 2014, the Government launched two consultations on Energy Efficiency in Rented Property. One consultation concerns domestic property and the other non-domestic although the proposals for each are similar. These relate to the implementation of The Energy Act 2011. The closing date for responses is 2nd September 2014.

The Energy Act 2011 requires that energy efficiency regulations for let property must be introduced by 1st April 2018. The legislation applies in England and Wales. Landlords should be aware that the long lead time before implementation is intentional. The regulations will apply from this date and all affected properties remaining at this date will be in breach. A proactive approach is essential to minimise this liability and further information will be issued once the consultation outcome is known.

Domestic Property

There are two main proposals for domestic property:

• Minimum standard regulations, to be in force by 1st April 2018, which will prevent landlords letting property with a substandard energy performance certificate (EPC) rating.
• Tenants improvement regulations, to be in force by 1st April 2016, to allow tenants to request their landlord make energy efficiency improvements.

Minimum Standard Regulations

• Properties which fail to have an EPC rating of E or above will NOT be able to be let out until energy efficiency improvements have been carried out to bring the rating up to this level.
• This will apply to Assured (including Assured Shorthold) Tenancies and also protected tenancies under the Rent Act 1977. The consultation may lead to other types of tenancy being included.
• The landlord will only be required to carry out works which are capable of funding under the Green Deal, i.e. where the savings are expected to be greater than the finance cost of the works.
• Where all such work has been completed and the property still fails it will be exempt from the regulations for a proposed period of 5 years. Other exemptions will be available, notably where the works would significantly decrease the value of the property.
• The consultation is seeking to decide whether the regulations will apply to only new lettings only or all let property straight away.

Tenant Improvement Regulations

• These regulations must be in place by 1st April 2016 and will allow a tenant to request consent for energy efficiency works to be carried out by the landlord.
• The landlord will not be required to spend their own money, the works must be capable of funding though Green Deal or other specified routes.
• The tenant will only be able to request certain works and there will be limited grounds for the landlord to refuse consent, such as where the works would diminish the value of the property or where the landlord already has energy efficiency measures planned..

Non-Domestic Property

• For non-domestic property the minimum standard regulations will mirror those for domestic property.
• These will apply to any property legally required to have an EPC and which have an EPC with a rating of F or G.
• They apply to property let under a tenancy which is not a dwelling.
• The same exemptions will apply and the consultation is seeking to determine whether again the rules apply to only new lettings or all let property.
• As non-domestic properties are often let for longer fixed terms there may be profound implications, for instance in the extreme the new regulations may render a lease void for illegality. In such a circumstance what are the implications for security of tenure if a periodic tenancy then arises?
• Tenants will also have to assess whether the cost of compliance falls on them under the terms of a lease or whether works to meet the new regulations may form part of a claim against them at the end of their current lease.

What Next?

The outcome of the consultation should hopefully provide a more complete picture of the regulations which will be coming into force. Landlords need to take a proactive approach to these rules to avoid finding themselves with unlettable property and potential unbudgeted expenditure.

Guest blogger: Richard Palmer, Head of Energy and Property Management, Butler Sherborn

Butler Sherborn are a firm of Land Agents , Energy Specialists & Estate Agents with a strong regional presence in the Cotswolds and Oxfordshire.