Buy to let landlords have been encouraged to insert covenants in their new leases imposing regulations on tenants regarding energy efficiency measures.
The Minimum Energy Efficiency Standards Regulations come into force on 1 April 2018. Landlords are required to to improve energy efficiency of their properties by this date, or otherwise they may be unable to let their less energy-efficient properties and could face penalties of up to £150,000.
As a result of this, South-East law firm Furley Page have encouraged landlords to insert covenants into any new leases that impose obligations upon tenants not to do anything to diminish the EPC rating of their rental properties. Under the general provisions already stated in leases, landlords are not able to impose this liability on tenants and cannot recover costs via a service charge. This is because the regulations do not impose any positive obligations on the landlord to improve the energy efficiency of buildings. Instead, the regulations just prohibit certain properties being let.
Commercial property specialist Liz Brady, a partner at the firm, explained: ‘Prudent landlords should be preparing for the change now. EPCs last for 10 years and were first carried out in 2008. Those early EPCs are due for renewal on new lettings in 2018.
‘Landlords may well consider that they are ‘safe’ from the penalties of the new regulations as their early EPCs showed a band rating of D or E so they may expect any renewed EPC to be similar, provided no negative alterations to the building have been made in the intervening years. This may be so, but properties with original band ratings of D or E (accounting for about 47 per cent of all such properties) are at risk. The EPC rating could fall to bands F or G on a new inspection as the software used for assessment has increased in its accuracy, and the Building Regulations on efficiency have become more rigorous.
‘Because of this risk, some prudent landlords are actively reviewing their property portfolios and having energy assessments carried out now (but not necessarily registered) and where improved ratings are needed, they are carrying out the works to improve the energy efficiency of their properties and hence those ratings and then having them reassessed.’