• Estate Management
• Residential Lettings

Forthcoming Changes to EPC Legislation on Minimum Energy Efficiency Standards

4 January 2018

Landlords need to be aware the Government are introducing Minimum Energy Efficiency standards (MEEs) in a phased roll out starting from April 2018, these will be monitored by the (Energy Performance Certificates) EPC rating of the property.

Energy Efficiency is the goal to reduce the amount of energy required to provide products and services.  For example:

• Insulating a home will use less heating and energy to achieve and maintain a comfortable temperature
• Replacing a single window pane in your house with an energy efficient one will prevent heat escaping in the winter and saves energy by using your boiler less.

In comparison energy conservation is reducing or going without a service to save energy. For example:

• Turning off a light
• Replacing an incandescent lamp with an LED

From April 2018 it will not be possible to start a new tenancy or for a fixed term tenancy to become periodic unless the property has an EPC rating of ‘E’ or above.

From April 2020 it will not be possible to continue an existing tenancy unless the property has an EPC rating of ‘E’ or above.

There are many factors that influence the production of an EPC and whilst the below is a simplified list, this does sumarise the principal points:

Age – All thermal resistance values default to Building Control at date of construction unless evidence to suggest otherwise.

Construction – Of all building Elements, Floors, Walls, Windows and Roofs and any retro-fitted insulation.

Space being heated – taking into consideration, Heat loss perimeter and any sheltered walls

Space Heating – considering Primary and secondary heat sources, and importantly Heating Controls

Water Heating

Renewable Energies and other energy saving measures (eg. low energy lighting)

With regard to Minimum Energy Efficiency Standards (MEES) the big question is how to get ‘F’ and ‘G’ rated dwellings to an E and above for the least expense and disruption.  With the endless permutations of the above factors, there is not one answer, so the best place to start (where one exists) would be with the EPC.

The Government has recently published its response to a consultation run last year on updating the Standard Assessment Procedure (SAP), which is the methodology for assessing the energy and environmental performance of homes.

Reduced data SAP (RdSAP) is the simplified methodology for use on existing dwellings to produce Energy Performance Certificates.

One of the proposals in the consultation was to bring the default U-values assumed in RdSAP assessments into line with the findings from latest studies which showed that solid walled properties do not lose as much heat as previously assumed.

In its consultation response the Government confirmed that these changes will be made to RdSAP in early November 2017 so that it can be used ahead of the Minimum Energy Efficiency Standards (MEES) coming into force in April.

It is expected that EPC ratings for existing dwellings with uninsulated walls will improve, and some solid walled homes in bands F or G will rise to a higher band and therefore above the minimum standard.

Having an up to date EPC carried out will confirm the most accurate banding the property falls into.  This will also not only give an indication of how many percentage points off target a property may be but also a breakdown of measures which will achieve the result if followed in the recommended order.

The most common problem is that often the most expensive jobs (primarily solid wall insulation) will feature first, and therefore the calculations for the cumulative improvements will be lost, but it will indicate what other low cost measures could be taken to look at first. It is also worth mentioning that the EPC always assumes the same fuel source for heating will be used, so would never suggest, for example, putting in oil instead of electric heating, although changing the heating fuel may in some instances work out cheaper and more effective than following the recommended path.

A band ‘F’ rating may not always require major alteration in order to gain the few percentage points required to tip it to the next band, and would suggest that it is worth checking the following measures are in place:

• Loft insulation (270 mm)
• Cavity Wall insulation (probably not likely to be a solution with older properties but worth checking)
• Draft proofing
• Heating Controls (at least Programmer, Room Thermostat and TRVS in a traditional central heating system)
• Hot Water Cylinder insulation and Cylinder Stat
• Low Energy Lighting to all fittings (free standing lights are excluded)
• Sealing, unused open fires/Chimneys
• Removing inefficient Secondary Heating (where an efficient Primary Heating is in place)
• Installing a thermal barrier (patio doors or the likes) where a conservatory is open plan to the house
• Lowering High Ceilings – to reduce the heated space

This list is not exhaustive but gives an indication as to some creative ways of achieving the desired results.

EXEMPTIONS TO MEES

Where a landlord considers that an exemption applies allowing them to continue to let a property below the minimum energy efficiency standard, that landlord will need to provide details and evidence of the exemption to a centralized self-certification register – the PRS Exemption Register.

There are several possible exemptions that can be applied for under the government guidance and these are summarised below:

• Where a recommended measure is not a “relevant energy efficiency improvement” because the cost of purchasing and installing it cannot be wholly financed at no cost to the landlord through the Green Deal Scheme.
• Where all relevant improvements have been made and the property remains below an ‘E’.
• Where the property is below an ‘E’ and there are no relevant improvements which can be made.
• Where consent is needed from another party, such as a superior landlord, a mortgagee, freeholder (if the landlord in question is a leaseholder of the property being let) or planning or listed building consent, and despite their reasonable efforts they could not obtain that consent, or the consent was given subject to conditions they would not reasonable comply with; or the landlord could not carry out the proposed improvements without the consent of the tenant or tenants of the property, and one or more of the tenants refused to give consent.
• Where a report is obtained from an independent surveyor who is on the Royal Institution of Chartered Surveyors (RICS) register advising that the installation of specific energy efficiency measures would reduce the market value of the property, or the building it forms part of, by more than 5%.

Every exemption will need to be applied for on the PRS Exemption Register and the local authority will either grant the exemption or request works to be carried out.

LISTED BUILDINGS

There is a common misunderstanding regarding listed buildings and whether they are exempt from the requirement to obtain an EPC. Listed properties, and buildings within a conservation area, will not necessarily be exempt from the requirement to have a valid EPC and it will be up to the owner of a listed building to understand whether or not their property is required to have an EPC. Where a listed privately rented domestic property, or a property within a conservation area, is required to have an EPC, that property will be within scope of the minimum energy efficiency standards.

An EPC is not currently required for a listed property or building within a conservation area when it is sold or rented in so far as compliance with minimum energy performance requirements would unacceptably alter its character or appearance. Examples of energy performance measures which may alter character or appearance (or as a minimum are likely to require local authority planning permission to install on a listed building) include solid wall insulation, replacement glazing, solar panels, or an external wall mounted air source heat pump. Where character or appearance would not be altered by compliance with energy performance requirements, an EPC may be legally required.

In all cases it is vital that a landlord understands whether their property is legally required to have an EPC at any time from 1 April 2018, and whether it is or is not exempt from having to comply with the minimum level of energy efficiency provisions. If there is any doubt about whether a property (or the building it is in) is legally required to have an EPC (or whether an EPC was legally required or voluntary), or about any of the other criteria described above, advice should be sought from the local trading standards.

GREEN DEAL FINANCE PLANS

Green Deal Finance Plan is the term for the arrangement established by the
Energy Act 2011 whereby specified energy efficiency improvements can be installed in a property and the cost of the improvements are recovered as a debt by the energy supplier who supplies the property with electricity. Green Deal Plans have a number of key features:

• There are three parts – a Green Deal consumer credit agreement, an installation agreement and a guarantee backed by insurance.
• The amount that can be financed by the plan is limited by the Golden Rule. This states that the first year’s repayments must not exceed the estimated first year saving, and the overall repayment period must not exceed the lifetime of the measures installed.
• The plan remains with the property and, provided disclosure has been made, is the responsibility of whoever the bill payer is.
• Repayments for the plan are made to the energy supplier.

In the context of the Regulations, a Green Deal finance plan can satisfy the ‘no cost to the landlord’ principle where the improvement measure(s) is fully fundable and the electricity bills at the rental property (with a Green Deal charge attached) are paid by the tenant rather than the landlord. A tenant in turn, while paying the Green Deal charge for as long as they paid the electricity bill at the property, should have been able to enjoy energy bill savings equal to or greater than the charge.

ENERGY COMPANY OBLIGATION (ECO): Help to Heat

Alongside Green Deal finance, ECO: Help to Heat is another ‘mechanism’ for delivering improvements to meet the minimum standards Regulations. ECO is a requirement that the Government places on energy suppliers to reduce the UK’s energy consumption and support those living in fuel poverty. It does this by requiring energy suppliers to provide households (including households in rented accommodation) with energy efficiency improvements. Obligated energy suppliers have carbon savings and heating bill savings targets which they are legally required to meet. The current obligation will run until September 2018.

Properties in the domestic private rented sector will be eligible for energy efficiency measures under the ECO: Help to Heat scheme, both under the carbon saving obligation (CERO) element and the Affordable Warmth element. Under Affordable Warmth, properties will be eligible if they are occupied by households who meet the Affordable Warmth criteria. This includes households in receipt of one of a list of qualifying means-tested benefits (including tax credits or universal credit below an income threshold). Under the new ECO Help to Heat Flexible Eligibility, suppliers also have the option of delivering up to 10% of their Affordable Warmth obligation to households identified by local authorities as fuel poor or low income and vulnerable to the effects of living in a cold home.

The Government plans to consult on a long-term new obligation in early 2018. Landlords can find out more about ECO and Affordable Warmth at www.gov.uk/energy-company-obligation. You can also find out whether a property you rent may be able to benefit from ECO funding by contacting the Energy Savings Advice Service on 0300 123 1234, where appropriate you may need to ask your tenant to contact ESAS themselves.

Reference used: https://www.gov.uk/government/publications/the-private-rented-property-minimum-standard-landlord-guidance-documents

[team-member name=”Carly Payne”]