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Under The Energy Efficiency (Private Rented Property)(England and Wales) Regulations 2015 (the MEES Regulations), from 1 April 2018, it will be unlawful to grant a new tenancy of a property with an EPC with a rating of below E (known as a sub-standard property), unless an exemption applies and has been validly registered. This prohibition is extended from 1 April 2020 (for domestic properties) when it will become unlawful to continue to let a sub-standard property.
Landlords of domestic premises, who have already let properties under assured shorthold tenancies (ASTs), may be under the impression that they do not need to do anything prior to 1 April 2020. However, there are circumstances in which an AST may fall within the scope of the MEES Regulations prior to that date.
On the expiry of a fixed term AST, it becomes what is known as a statutory periodic tenancy. Although no new formal tenancy agreement is entered into, the case of Spencer v Taylor (in 2013) held that a "new" tenancy is created when the fixed term comes to an end.
Therefore, it is likely that the MEES Regulations will apply to any periodic tenancies that arise at the expiry of a fixed term AST.
The MEES Regulations allow a six month exemption in cases where there is a “deemed creation of a new lease by operation of law” so a landlord will have six months to either show that the property has a rating of E or above, or register another exemption (which will typically last for five years).
A landlord can only rely on an exemption if has validly registered it on the PRS Exemptions Register.
This is the same question that has arisen in relation to lease renewals. It is common practice not to provide an EPC on a lease renewal. This is in line with current government guidance, which states that lease renewals are not considered to be a sale or letting to which the duty to provide an EPC applies. Whilst the guidance gives no specific reason for its view, it is likely that the rationale is that an EPC is provided to enable the potential tenant to consider the energy performance of the property as part of its investment. If the tenant is already in occupation, the EPC becomes redundant.
The MEES Regulations state that a property is sub-standard where the "valid" EPC shows it as having a rating of below E. If there is no valid EPC at the point when the statutory periodic tenancy arises (for example, because the EPC is more than ten years' old), does this mean that the letting will be outside the scope of the MEES Regulations? It is possible, but, as this could result in tenancies that continue with the same tenant being outside the scope of the MEES Regulations, it is unlikely that this was the intention of the legislation.
The obligation to provide an EPC was introduced in August 2007 for domestic properties with four or more bedrooms, and was extended over time to smaller properties. Therefore, the instances of expired EPCs are likely to be fairly limited for the moment. However, as time goes on, this issue is going to become more commonplace. It remains to be seen whether government guidance on whether an EPC needs to be provided on a lease renewal, or the creation of a new tenancy by operation of law, will be amended.
Landlords who have granted fixed term ASTs need to review the lettings in their portfolio and diarise the end dates of fixed term ASTs.
If a fixed term AST is due to expire on or after 1 April 2018, the EPC will need to be checked to see if it will be valid on that date. If it will be valid, and shows the property to be sub-standard, the landlord will need to register a six month exemption and consider what action to take to comply with the MEES Regulations on expiry of this temporary exemption. If it will not be valid, the landlord may need to commission a new EPC. Hopefully government guidance will be issued clarifying this point. If a new EPC did have to be commissioned, and this showed the property to be sub-standard, a six month exemption would need to be registered.
The MEES Regulations are complex. Breach can result in a fine of up to £4,000 for a breach of 3 months or more in respect of a domestic property. The landlord can also be "named and shamed", which could lead to reputational damage. Contact us for advice on how to ensure that you comply with the Regulations.
Contributor: Alexandra Holsgrove Jones
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at February 2018. Specific advice should be sought for specific cases. For more information see our terms & conditions.
07 February 2018
by Maria Connolly