Rural landlords must budget for energy efficiency upgrades

Rural businesses in England and Wales with let residential property will need to prepare for the introduction of new rules requiring them to spend £3,500 per property to pay for energy efficiency upgrades.

Since the introduction of Minimum Energy Efficiency Standards (MEES) regulations on 1 April 2018, landlords have been prevented from granting a lease to a new or existing tenant on properties with an Energy Performance Certificate (EPC) below an E grade.

However, to date, landlords have been able to apply for an exemption to allow a property below an E grade to be let if they can prove that the improvements required cannot be funded by a third party.

This is because the original regulations were drafted on the assumption that landlords would be able to access Green Deal or other third-party funding and were not expected to pay for the work themselves.

However, the government has now decided that it will remove the current ‘no cost to the landlord’ provision and make landlords liable for a financial contribution, capped at £3,500 (inclusive of VAT) to bringing any rental properties up to standard.

Although this is not a surprise, this is a decision that may prove particularly costly to rural landlords, as they are often renting out older properties, which can be harder to bring up to minimum energy standards.

The government is yet to confirm exactly when the new rules will come into effect, but we expect it to be early 2019.

In the meantime, rural landlords should review what improvement works would be required to upgrade sub-standard properties and budget accordingly.

Landlords who find themselves with a substandard property that cannot be improved to an E grade for £3,500 or less should be able to apply for a new ‘high cost’ exemption.

However, it is understood that landlords will still be required to carry out recommended energy improvement works up to the cap and it is at this point if the property does not achieve at least an E rating, the ‘high cost’ exemption can be registered.

Any investment in energy efficiency works made since October 2017 will be counted within the £3,500 cap, along with any available third-party funding.

MEES regulations apply to all residential and commercial property where a new letting is being conducted, or a lease is being renewed. The regulations are designed to establish minimum efficiency standards across privately-rented homes.