The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 bring into force minimum energy efficiency standards both in residential and private sector and for commercial property. Landlords with properties with an EPC rating of less than ‘E’ will either need to carry out works to improve the energy performance or face civil penalties. The Regulations also make it unlawful for the Landlord of residential property to unreasonably refuse consent to the Tenant’s request to make prescribed energy efficiency improvements to properties.

From 1/4/2018, the regulations will apply to the granting of a new tenancy or extending an existing tenancy or renewing an existing lease and also where a statutory periodic tenancy comes into existence at the end of an assured shorthold tenancy or commercial lease. The regulations apply to a commercial lease for more than 6 months and less than 99 years or, in relation to domestic property, to Assured Tenancies, Assured Shorthold Tenancies, Rent Act Tenancies and any other tenancy specified by an order of the Secretary of State from time to time. So, for any tenancy even if entered into before 1/4/2018, the property will be required to have a minimum EPC rating of ‘E’ whether or not the lease is in respect of domestic or commercial property.

By 1/4/2020, the regulations extend to all existing tenancies of domestic property and by 1/4/2023 for all other commercial property where the landlord has an existing lease in place.

If the property rating is less than ‘E’, the landlord could be liable for financial penalties and these will be imposed by the Local Authority by the service of a compliance notice. This means that all landlords must consider the energy efficiency of their premises and carry out improvements where necessary. If the property is exempt, the landlord can apply to register the property on the Central PRS Exemption Register. Exemptions can include where the property is unable to be brought up to the standard; where the tenant refuses consent; where the landlord is unable to obtain consent from a third party or where works required to bring the property up to an ‘E’ rating would devalue the property by more than 5% of the market value.

Penalties can be either a financial penalty or publication penalty – these are published in the exemptions register for a minimum of 12 months. For a breach of less than 3 months, financial penalties are up to £5,000 or 10% of the rateable value for commercial property and £2,000 for domestic property. For breaches over 3 months, the penalties rise to £10,000 or 20% of the rateable value for commercial property (up to £150,000) and £4,000 for domestic property.

The regulations do not impose obligations on the landlord to make improvements to sub-standard property but restrict the Landlord from letting that property until at least an ‘E’ rating is achieved.

However, Brexit may affect whether these regulations are postponed, amended or even repealed. Landlords should, though, consider the energy efficiency of their properties and carry out an assessment of their property. Landlords should be ready to make improvements if necessary. A landlord will also need to consider whether the current lease terms allow them to enter the property and carry out works during the term. Drafting of new leases will also have to take this into account. A landlord will want to ensure that all costs are passed to the tenant and a tenant will need to know what costs they are taking on.