The minimum level of energy efficiency provisions in a domestic private rented property in England or Wales must not be let on a new tenancy after 1 April 2018 where its energy performance indicator is below the set minimum level of energy efficiency (unless an exemption applies). The minimum level of energy efficiency, or minimum standard, allowed by the Regulations is an Energy Performance Certificate (EPC) rating of E.
The current domestic regulations are based on a principle of ‘no cost to the landlord’, this means that landlords of F or G rated homes will only be required to make improvements to these properties where they can do so entirely using third party finance from one or more sources.
The premise behind this action is that EPC F and G rated properties waste energy. They impose unnecessary cost on tenants and the wider economy, and they contribute to avoidable greenhouse gas emissions. Increasing the energy efficiency of our domestic rental stock can help to manage the energy costs of tenants, including some of the most vulnerable; improve the condition of properties and help reduce maintenance costs; smooth seasonal peaks in energy demand, and thereby increase our energy security and reduce greenhouse gas emissions at relatively low cost.
Increased demand for energy efficiency measures is also likely to support growth and jobs within the green construction industry and the wider supply chain for energy efficiency. Greater competition within these markets may also spur innovation, lowering the end costs of installing measures to business and households, and help sustain jobs.
The Regulations are intended to ensure that those tenants who most need more efficient homes, particularly vulnerable people, are able to enjoy a much better living environment and lower energy bills. Although newly built homes in the private rented sector tend to have higher energy-efficiency ratings than the average, there remains a stock of older, less modern properties, and many of these have poor energy efficiency and are difficult and costly to heat. These less efficient properties result in higher tenant energy bills, and for many, the likelihood of living in fuel poverty.
Data shows that the average annual cost of energy for an EPC band G property is £2,860, and £2,180 for an F rated property. This contrasts with an average annual cost of £1,710 for an EPC band E property6 . Therefore a tenant whose home is improved from EPC band G to band E could expect to see their energy costs reduced by £1,150 a year so long as there were no wider changes in how they use energy in the property.
Increasing a property’s energy efficiency may also increase its market value. Evidence shows that a significant proportion of domestic UK landlords invest in property because of the potential for long-term capital appreciation. Investing in energy efficiency means that those landlords may benefit from a further capital value boost when they do finally look to sell an improved property.
There is a maximum level of penalty which applies to each property. This is set at £5,000. This means that if, for instance, a landlord is fined £2,000 for being in breach of the Regulations for less than three months, and they continue to let the property below the minimum standard after three months, the most they can be fined for a three months or more breach, will be £3,000. £5,000 in total.
Landlords in the PRS - You have been warned!