Energy Efficiency Costs

Energy Efficiency Costs

As CLA members are probably more than aware by now, the MEES regulations will make it illegal to let a private rented property to a new tenant if the property has an energy performance certificate (EPC) rating of F or G from 1 April 2018. And from 1 April 2020 it will be illegal to let a private rented property to an existing tenant if the property has an EPC rating of F or G.

Members who have followed this subject with even a modicum of interest will be aware that the roll out of this policy hasn’t exactly been straightforward. It should therefore come as no surprise that The Department of Business Energy and Industrial Strategy has published yet another consultation on further amendments to the MEES regulations. The consultation runs until 13 March.

The key proposed amendments are removing the ‘no cost to the landlord’ element and introducing a landlord funding contribution where a landlord is unable to obtain suitable ‘no cost’ funding. In plain English this now means that landlords will be expected to contribute some of their own money to improving the energy efficiency of their properties.

At the same time, the Government is proposing to introduce a cost cap to set a limit on the amount any landlord would need to invest in an individual property. A cap of £2,500 per property (inclusive of VAT) is proposed.

Landlords will not to be expected to pay any more than it will cost to improve their property to an E rating. Most substandard properties are likely to require less than £2,500 of investment to meet the minimum standard.

For some properties however, the level of investment required to meet the minimum standard may be significant, and it will be in these circumstances that the cost cap comes into play.

For example, if a property required £5,000 of investment to improve the property to an E rated EPC, under the proposals the landlord would be only expected to spend up to the cap of £2,500 and regardless of whether the property had achieved an E rating, it would be deemed to be compliant with the regulations.

It is important to note that any third party funding the landlord can obtain will count towards the cost cap. For example, if a landlord were able to obtain £2,000 of funding, either through ECO funding, a pay as you save loan or a local authority grant, they would be only expected to spend an additional £500 of their own money to reach the cost cap.

Just to reiterate, the Government is not asking landlords of F and G rated properties to each spend £2,500 on their properties but rather to achieve an E rated EPC. Landlords can go about improving their property to an E rating as cost effectively as they wish, but for those with properties that will require significant expenditure, the Government is capping costs at £2,500.

The removal of the ‘no cost to the landlord’ element is a response to the fact that the funding situation via ‘no cost’ routes – i.e. the new pay as you save Green Deal model mooted last year is still in production and its success uncertain. If it were to fail or be delayed, the current drafting of the regulations would offer every landlord an exemption.

One point the consultation raises that the CLA will be objecting to is that money spent via the landlord’s own pocket or through grant funding will only count towards the cap if it has been spent since 1 October 2017. We will argue any investment since the regulations were approved should count towards the cap.

A win for the CLA

Overall, despite the timing, this is a very good result for the CLA. In March 2017 the CLA published a report stating it was supportive of a £5,000 cost cap so to have that come down by 50% is very positive. The fact grant funding counts towards the total rather than it being entirely the landlords own money is also a significant win. On that note, it’s worth checking your local authority website for funding options as more are becoming available.

We will be meeting with BEIS officials to discuss the proposal and some of the wider technical issues their proposal raises. The timing of the changes is not ideal but looking on the bright side, at least with the consultation finishing 18 days before the regulations come into effect, this looks to be the final chapter in this saga.