The Energy Act 2011 introduces legislation relating to energy efficiency in buildings which will have an impact on the property market
From April 2018 at the latest, it will be unlawful to rent out residential or business premises which do not reach a minimum energy efficiency standard. It is likely that landlords of F- and G-rated buildings will be unable to let them out after April 2018 unless they improve the energy efficiency of those buildings.
The new law will also affect residential lettings, but it is not clear at this stage if the new minimum standards will apply to all lettings and re-lettings, including sub-lettings & assignments.
Valuations of such properties could be affected if their marketability is diminished and rent reviews for properties in this situation could also be affected.
Given this risk to property owners and occupiers it is clear that a full understanding of the energy efficiency of current and future acquisitions of buy to let property assets should be attained.
We recommend the following steps:
1. Review your property portfolio and check which properties currently have an Energy Performance Certificate (EPC).
2. Identify properties with an E-rating or below.
3. Establish the cause of the low rating:
- Does it relate to tenant’s alterations which the landlord can reasonably require the tenant to remove at the end of the lease (e.g. an inefficient aircon system?)
- Are there elements within the fabric of the building that could be modified during a planned refurbishment or redevelopment or within the normal cycle of on-going maintenance, repair and renewal (e.g. outdated building services)?
- Is it even possible that an error was made during the preparation of the original EPC, which can easily be corrected?
4. Assess what improvements can be made to raise the energy standard for low-rated properties. Which are essential and which merely desirable? Use the recommendation report attached to the original EPC as your starting point.
5. Check your leases carefully – does responsibility for making statutory improvements fall on the landlord or the tenant? Can the landlord recover the costs of statutory compliance from the tenant via a service charge?
6. Assess what you may be liable for and factor the likely costs into your annual budgets between now and April 2018, to spread the outlay as much as possible.
7. Take maximum advantage of enhanced capital allowances available for certain types of energy-efficient plant and machinery (100% allowance in the first year). Some improvement costs may also be met through the Government’s “Green Deal” initiative for commercial buildings (as and when it is launched).
8. Be aware of the possible implications of deferring improvements, particularly as the costs of energy efficiency works are bound to rise as 2018 approaches, due to increased demand for works from unprepared property owners.
9. Consider commissioning EPCs for those of your properties which do not yet have one (remember it is now compulsory to obtain an EPC before marketing any property for sale or rent), and revisit steps 3-8 above for those properties.
Inconsistencies
Sales are not caught by the legislation; only leases. Whether the rules will apply to the grant of a long lease for a premium (which is generally treated as a “sale” despite technically being a lease) is not yet clear.
If you wish to discuss this article or any property matters please contact property@olaleslie.com or 02071830084
Its certainly worth Landlords and Property Managers to start looking at this now. Its far easier to pinpoint and then carry out the remedial works while units are void instead of trying to get it all completed at the last minute.