WARNING:  This exemption is only available until April 2019 due to changes being made to the legislation.  After this, landlords will be required to fund improvements up to a £3500 cap.

A Landlord is only required to make improvements to meet the minimum standard if they can do so at no cost to themselves.  No cost funding can come from a range of sources including:

• • Green Deal Finance,

• • ECO help to heat funding,

• Local Authorities home energy efficiency grants,
• tenants,
• any other source not repaid by the landlord,
• any combination of the above.

For general advice and assistance on energy efficiency funding, landlords can contact the Energy Savings Advice Service on 0300 123 1234.  For scheme specific information landlords should:

• • Green Deal Finance: Search for a local Green Deal Provider (details can be found on the Green Deal Finance Company website www.gdfc.co.uk) or through the enquiry form on the GDFC website;

• • ECO help to heat programme: Contact the Energy Savings Advice Service on 0300 123 1234 or email energy-advice@est.org.uk, (where appropriate the landlord may need to ask their tenant to contact ESAS themselves);

• Local Authority funding: Contact their local Authorities for information on any home energy efficiency grants available.

Note: The New Regulations

On 19th December 2017 the Department of Business, Energy and Industrial Strategy (BEIS) launched a new consultation to amend the Regulations.  The consultation concluded on 13 March 2018, and legislation has subsequently been made to introduce a funding cap.  From April 2019 Landlords will be required to make improvements to a property up to the cap (currently £3500 per property) before being able to claim an exemption.  At the same time the original “no cost” exemptions will be removed.

Further information can be found on the BEIS website on GOV.UK

The guidance issued by the Department for Business, Energy & Industrial Strategy on this subject is very clear.  It states:

There are no specified materials or improvement measures; a landlord is free to do whatever they like with their property so long as the EPC rating can be raised to meet the Minimum Energy Efficiency Standard. The most assessable source of advice would be the recommended measures section on EPC for the property, but landlords can seek advice from other suitably qualified experts if they wish.

Holiday lets, together with rooms in hotels and bed & breakfast accommodation are typically let under a licence to occupy, rather than a tenancy.  Therefore, this type of rental property is normally outside of the scope of the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 and not required to meet the MEES.

If there are any concerns about whether a property is occupied under a licence or a tenancy, and whether the landlord is subject to the Regulations, independent specialist legal advice should be sought.

HMOs are not excluded from the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015. The Regulations apply to all privately rented properties that are legally required to have an EPC, and where rooms are let on one of the qualifying types of tenancy (most likely assured tenancies). An HMO will be in scope where it meets these criteria.

However, individual rooms within HMOs are not required to have their own EPC, so a property which is an HMO will only have an EPC if one is required for the property as a whole (typically this will be if the property has been build, sold or rented as a single unit at any time in the past 10 years). If an HMO is legally required to have an EPC, and if it is let on one of the qualifying tenancy types, then it will be required to comply with the minimum level of energy efficiency.

NB:  Many HMOs are run on a commercial basis and as such are business premises.  Where this is the case they would normally require a non-domestic EPC like a hotel, hostel, care home or student accommodation block rather than a domestic EPC.

The tenancy types that the Minimum Energy Efficiency Standard (MEES) applies to are:

• An assured tenancy (including an assured short hold tenancy) defined in the Housing Act 1988.
• A regulated tenancy defined in the Rent Act 1977.
• An agricultural tenancy as set out in the Energy Efficiency (Domestic Private Rented Property) Order 2015.

The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 only apply to tenancies in the private rented sector.  They do not apply to properties owned by councils and social landlords.  Similarly, they do not apply to properties occupied under licence without a qualifying tenancy.

Whilst the exemptions are relatively straight forward, applying them is more complex and can also involve understanding the separate regulations that apply to both Energy Performance Certificates and the Minimum Energy Efficiency Standards.  There are some organisations suggesting that landlords can easily avoid improving their buildings by claiming an exemption.  Our experience is that this is more difficult than it first appears and could easily cost more than improving the building to meet the standards.

Exempt buildings and tenancies

Not all buildings and tenancies fall within The Energy Efficiency (Private Rental Property) (England and Wales) Regulations 2015.  The MEES do not apply to:

• Buildings that have not been legally required to have an EPC.  These can include some listed buildings (see our specific notes on this topic), temporary properties, some HMOs and holidays lets.  It will also apply if the property has not been built, sold, let or significantly altered since the introduction of EPCs.
• Buildings without a valid EPC.  This would include buildings where the EPC is over ten years old when it is relied upon for the MEES regulations.
• Buildings only with a voluntary EPC.  An EPC may have been lodged for any number of reasons.  EPCs completed for purposes other than the construction, sale, let or significant alteration of the building, including those lodged in a mistaken understanding that one was required, are known as voluntary EPCs.  A building is only subject to MEES if the EPC was legally required.  NB: There is currently no way to tell this from the EPC itself and so you will need to know the history of whether or not the building has legally required an EPC.
• Buildings occupied solely under licence.  MEES only applies to buildings occupied under a “Relevant Tenancy”.  This includes an assured tenancy, a regulated tenancy and domestic agricultural tenancies.  If the occupier is present only under a licence to occupy the MEES requirements will not apply as there is no tenancy.
• Social housing schemes.  The regulations apply only to privately rented properties.  Social housing is exempt from MEES regardless of its condition, quality, or EPC rating.

Exemptions from making improvements

There are a number of circumstances where an exemption or multiple exemptions from making improvements can be claimed.  Where an exemption of this type is claimed, it may be possible to continue to rent out a substandard property.  However, all exemptions of this nature must be lodged on the PRS Exemptions Register.

Additionally, it should be noted that specific supporting evidence is required before registering an exemption on the PRS Exemptions Register.  We can provide specialist advice in this area as part of our service but would always caution clients that meeting these requirements can cost significantly more than making improvements to meet the MEES.  This will obviously depend upon the building and the improvements required but changing a few lights will likely be cheaper than obtaining professional services to prove a property will be devalued for example.

Registered exemptions are also non-transferable.  At best they are valid for a maximum of five years but a change in tenant or sale to a new landlord will normally mean the process (and costs involved) will have to be repeated.  Only then can new exemptions be registered.  There are also significant penalties for making a false or misleading declaration on the PRS Exemptions Register.

The main exemptions from making an improvement are:

• All relevant improvements have been made – Where all the improvements suggested have been made and the property still remains below the MEES.
• Incompatible wall insulation improvements – Where independent experts conclude that it is inappropriate to make the wall insulation improvements suggested as they would have a negative impact on the structure or fabric of the property (or the building of which it is part).
• Improvements which cannot be financed without cost to the landlord – Landlords are not required to make improvements where relevant “no cost” funding is not available.  However, they must attempt to take advantage of funding that is available and must be able to demonstrate this.  Improvements that do not meet the new “Golden Rule” for Green Deal funding may fall within this exemption but only if alternative funding is not available.
• Devaluation of the property – You are not required to make an improvement where an independent surveyor determines that making it would devalue the property by more then 5% of its current market value.
• Third Party Consent is refused – Where there is a sitting tenant you might complete the formal process required in offering to improve the property and consent may be withheld.  Equally, you may require consent from a superior landlord, a bank or building society or the local authority which may be reasonably refused.  However, you will have to demonstrate that you have applied for permission and have tried to accommodate any reasonable restrictions that they have placed upon you before you can claim this exemption.  This exemption can also be used where planning, conservation or other consents are required from statutory authorities providing it can be demonstrated that these have been applied for and refused.

Please note that every suggested improvement must be considered individually for the purposes of claiming exemptions.  It is therefore highly likely that, even where some improvements may be subject to exemptions, others will not.  In this situation, some improvements to the building will still need to be made.