This is without doubt one of the most common questions we are asked. It is a complex area and understanding the possible exemptions is becoming more important as enforcement is tightened. To correctly understand the exemptions, it is important that the regulations applying to both Energy Performance Certificates (EPCs) and the Minimum Energy Efficiency Standard (MEES) are fully considered. Whilst we are unable to provide legal advice and recommend those wishing to apply for an exemption obtain their own specialist legal advice pertaining to their specific circumstances, we have assembled some of the key information below:
Buildings and tenancies exempt from the regulations
Not all buildings and tenancies fall within The Energy Efficiency (Private Rental Property) (England and Wales) Regulations 2015. These regulations also do not currently require that an EPC be obtained for any building. If one of these exemptions applies then the MEES does not apply to the building at the current time and no further action is legally required in relation to the regulations. However, owners would still be well advised to consider the impact of any changes to the building on the EPC rating as it can now significantly effect future operations and the value of the building.
The MEES do not apply to:
- Buildings that have not been legally required to have an EPC. These can include non-domestic buildings with a low energy demand, some places of worship, some listed buildings (see our specific notes on this topic), temporary properties and some holidays lets.
- Buildings without a valid EPC. This would include buildings where the EPC is over ten years old when it is relied upon for the MEES regulations and those where an EPC has never been completed.
- Buildings only with a voluntary EPC. An EPC may have been lodged for any number of reasons. EPCs completed for purposes other than the sale or let of the building, including those lodged in a mistaken understanding that one was required, are known as voluntary EPCs. A building is only subject to MEES if the EPC was legally required. PLEASE NOTE: There is currently no way to tell this from the EPC itself and so you will need to know the history of whether or not the building has legally required an EPC.
- Short tenancies. This applies to tenancies of less than six months with no right of renewal.
- Long tenancies. This applies to tenancies of over 99 years.
Exemptions from making improvements
Where the Minimum Energy Efficiency Standard (MEES) applies, there are a number of circumstances where an exemption or multiple exemptions from making particular improvements can be claimed. Where an exemption of this type is claimed, it may be possible to continue to rent out a substandard property. However, all exemptions of this nature together with the relevant supporting evidence must be lodged on the PRS Exemptions Register.
Additionally, it should be noted that specific supporting evidence is required before registering an exemption on the PRS Exemptions Register. We can provide specialist advice in this area as part of our service but would always caution clients that meeting these requirements can cost significantly more than making improvements to meet the MEES. This will obviously depend upon the building and the improvements required but changing a few lights will likely be cheaper than obtaining professional services to prove a property will be devalued for example.
Registered exemptions are also non-transferable. At best they are valid for a maximum of five years but a change in tenant or sale to a new landlord will normally mean the process (and costs involved) will have to be repeated. Only then can new exemptions be registered. There are also significant penalties for making a false or misleading declaration on the PRS Exemptions Register.
The main exemptions from making an improvement are:
- No improvements are possible – Where independent experts conclude that it is impossible to make the improvements suggested on the EPC as they are physically incompatible with the construction of the property or would damage it.
- Devaluation of the property – You are not required to make an improvement where an independent surveyor determines that making it would devalue the property by more then 5% of its current market value.
- Third Party Consent is refused – Where there is a sitting tenant you might complete the formal process required in offering to improve the property and consent may be withheld. Equally, you may require consent from a superior landlord, a bank or building society or the local authority which may be reasonably refused. However, you will have to demonstrate that you have applied for permission and have tried to accommodate any reasonable restrictions that they have placed upon you before you can claim this exemption. PLEASE NOTE: This also applies to Listed Buildings as consent for suitable improvements may be granted. Before claiming an exemption from improving a Listed Building you should always apply for Listed Building Consent (a free process with your local authority) and use any refusal as the evidence required to claim an exemption under this section.
- The Seven Year Payback Test – It is expected that any improvement made will recoup its cost within seven years from the savings that will occur in the subsequent energy bills. The Government has defined a specific methodology for calculating this and the guidance advises most landlords to engage the services of a competent professional to perform these calculations on their behalf. If it can be demonstrated that the improvement does not meet this requirement an exemption can be claimed.
Other important considerations
- Every suggested improvement on the Energy Performance Certificate (EPC) must be considered individually for the purposes of claiming exemptions. It is therefore highly likely that, even where some improvements may be subject to exemptions, others will not. In this situation, some improvements to the building will still need to be made.
- The EPC is not the only improvement report which should be considered. Other energy efficiency reports can also be used including a Display Energy Certificate (DEC) or Air Conditioning Energy Inspection (ACEI). As a result, these may also need to be checked for potential improvements where they exist or are required.
- Different exemptions apply for Domestic properties.