The Ministry of Housing Communities and Local Government (MHCLG) has announced that it will amend the Energy Efficiency (Private Rented Property) (England and Wales) Regulations to require landlords to carry out improvements with or without funding where the cost will be no more than £3,500 inc VAT.
The minimum energy performance rating of E for private rented properties was introduced in 1 April 2018. The minimum rating applied to renewals or tenancies that began on or after 1 April 2018. For existing tenancies, the minimum rating will not apply until April 2020.
There are of course exemptions to the minimum rating of E including that the landlord cannot obtain funding to undertake the recommended improvements. The simple rule prior to this new announcement was that if a landlord could not obtain funding for improvements to a property rated F or G then they could claim an exemption to the rule requiring a minimum rating of E. Where a landlord correctly applies for an exemption, they are permitted to rent out their property rated F or G without a risk of penalty.
The amendment to the Regulations will require landlords to make improvements to properties rated F and G where the cost of the improvements will cost no more than £3,500. In their response paper the MHCLG has stated that the average cost to improve a F and G rated property is expected to cost some £1,200 and will affect some 200,000 landlords.
It is important to note that if third party funding is available it should be counted within the cost cap of £3,500. This means that a landlord will be required to make a financial contribution to the cost of the improvements where third-party funding is not available or is insufficient.
When applying for the ‘High Cost’ exemption the landlord will need to provide 3 installer quotes to qualify. This cost cap will only apply to private rental properties and is expected to come into force in 2019. Where landlords already have a ‘no cost to landlord’ exemption that exemption will no longer apply from 1 April 2020 thus reducing the length of the exemption which is currently 5 years.
The changes announced by the MHCLG also includes an end to the ‘tenant confirmation’ exemption. This means that where a tenant withholds consent to a ‘Green Deal’ finance plan then landlord will no longer be entitled to apply for an exemption. Instead landlords will be required to apply for alternative financing for the improvements up to and including making a contribution up to the cap of £3,500.
We do not know exactly how the MHCLG decided that the cost cap should be set at £3,500. They considered a figure of £2,500 but decided on £3,500. The MHCLG has attempted to explain their decision in the paper but it has not shed any light on the cap chosen.