Energy Performance Certificates

If you deal with building, buying, selling or renting property, you should be aware of Energy Performance Certificates (EPCs). They rate the energy efficiency of a property from ‘A’ as the most efficient to ‘G’ as least efficient and are valid for 10 years. EPCs were introduced in England and Wales in 2007 and came about from a European Union (EU) directive inspired by the Kyoto Protocol on the EU’s reduction of its carbon emissions.

EPCs are largely overlooked in the conveyancing procedure: they’re included in the usual bundle of papers solicitors check but garner less scrutiny than, say, the environmental search results. EPCs are forwarded to buyers and prospective tenants to check too but, well, I’ve never dealt with a client query about an EPC.

Due to the Energy Act 2011 (the Act) EPCs will gain greater significance.

Energy Act 2011

The Act makes it unlawful to let residential or commercial properties which fail to meet a set standard. The regulations which will enforce this provision of the Act – by 1 April 2018 at the latest – are open for consultation. At the time of writing, the consultation paper on the regulations sets that minimum standard as an energy performance rating of E.

If the regulations proposed in the consultation paper are adopted a property with an EPC rating within the bottom 2 grades – F and G – would not meet the minimum standard and before it could be let the landlord would be obliged to make energy efficiency improvements to the property. The improvements must either raise the energy efficiency rating to the minimum standard rate E, or comprise a full package of measures possible under the Green Deal (a scheme offering loans and grants to finance energy improvement measures).

Practical implications

The regulations could impact on the following people:

·         Buy-to-let investors looking to purchase properties to rent out.

·         Landlords negotiating rent reviews.

·         Tenants who, if the regulations allow, could have energy improvement costs passed on to them.

·         Property owners generally, insofar as energy efficiency ratings will affect the marketability of a property.

Remember, too, that over time properties are likely to become less energy efficient and that, once set, the minimum standard for energy efficiency is unlikely to be lowered. This means that properties which only just meet the minimum standard may not do so once the regulations come into force and/or a new EPC is required.

Practical steps

The Department for Energy and Climate Change has yet to confirm the minimum energy efficiency rating which will be required in order to let a property. Until it does so, it will be difficult to decide what action, if any, to take. However, the following steps may help:

·         Buy to let investors – and their solicitors – should pay more attention to the EPCs provided by sellers. Poor energy ratings need not scupper property purchases but buyers should factor in the costs of improving energy performance and those who redecorate or refurbish properties before letting them, should consider incorporating energy improvement measures at that redecoration stage.

·         Landlords should review the current EPC ratings of property within their portfolios. They can then assess what action, if any, needs to be taken. To ensure properties remain lettable they could take steps to improve the energy efficiency of properties – giving consideration to whether the associated costs could be recovered as a service charge – or sell poorly rated stock.

·         Tenants and landlords of domestic property should note that the Act allows tenants to request the landlord’s consent to energy efficiency improvements to a property and provides that the landlord cannot unreasonably refuse. Whilst the costs of any improvements may be financed under Green Deal scheme, it’s charge against the property to recover its loan, may remain in place after the tenant has moved on.

·         When dealing with property generally, bear in mind the upcoming impact of the Act; e.g. when negotiating new leases or licences for alterations. Clauses could be incorporated to ensure more energy efficient use of the property, to provide that energy improvement measures are (dis-/)regarded on rent reviews or to provide for the recovery (or not) of the costs of energy improvement measures.