Call for maintaining policy for improving the energy performance in the England and Wales rental market

For improving the energy performance in the buildings sector, the rental market has probably been the toughest segment to address effectively. In Britain this was solved by regulations that required the poorest performing buildings to reach a minimum standard. Andrew Warren, chairman of the British Energy Efficiency Federation, and a friend of EiD, writes in the March issue of Energy in Buildings and Industry that, with legislation imminent to boost the energy efficiency of the rented property sector it is essential landlords don’t have a get-out to avoid making improvements to their properties.

 

Landlords must not use this loophole

At last. Next month we will see what is arguably the most important buildings sector energy efficiency initiative of the 2010/15 Coalition Government taking effect.

Five years after the relevant legislation was passed, the Energy Efficiency (Private Rented Property) Regulations will come into effect. Or at least they will in England and Wales.

From this April, landlords will not be able to refuse any reasonable requests from existing tenants to improve their property’s energy performance. Importantly, local authorities also acquire powers to act on behalf of tenants.

And in two years time, the law will affect all new tenancies. From April 2018 it will be illegal to rent or lease out any home or business premise that has less than an “E” energy efficiency rating.

When the legislation was enacted in 2011, the government estimated that this should ensure that 682,000 of the worst domestic properties would have to be improved. Those in fuel poverty currently live in the majority of these. Sadly, those living in homes in multiple occupation (effectively those with communal facilities like kitchens and bathrooms) do not appear to be included within the current regulations.

However, the more immediate impact is already evident in the commercial sector, where owner occupation is relatively unusual, and a far larger proportion of buildings leased out.

It is this sector where there has already been a far more significant response to the legislation. From the start, there have been several large property agencies that have been approaching larger commercial landlords – including pension funds and insurance companies – warning about the implications for their investment portfolios.

Even though the F- and G-rated buildings would still be able to let right up until April 2018, retaining these in any property portfolio was automatically damaging its long-term value. While in theory sales of such energy-inefficient properties will still remain perfectly legal after 2018, in practice the marketplace has been discounting their value.

Below minimum standard

It has long been accepted that at least one in five commercial buildings already are below the minimum standard. And while no Minister since last May’s election has breathed a word to that effect, it is commonly whispered within the property industry that it won’t be too long before properties with E or even D ratings will be caught by an extension of the regulations.

So, providing such transactions are properly policed, we can sit back and assume that within a few years practically all of the worst gas guzzling rented properties will have been improved? Er, not quite.

Because while there was no such caveats listed within the primary legislation, last year the supporting or secondary legislation did include a couple of new clauses which less scrupulous landlords may all too easily exploit in order to deny tenants’ claims to improve their property.

Let me quote from Part 3,Chapter 2, section 24(4a) of the relevant Regulations:

(4) For the purposes of paragraph (b)(iv) in the definition of “relevant energy efficiency improvements: in section 43(4) of the Act, an energy efficiency improvement is a relevant energy efficiency improvement where the cost of purchasing and installing it:

(a) can be wholly financed, at no cost to the landlord, by means of funding provided by the central government, a local authority, or any other person.

What this means in plain English is that less scrupulous landlords can try to argue that the phrase “at no cost to the landlord” means precisely that. The initial capital cost for the energy improvements must come from other than their own pockets. If that isn’t available, they need to do nothing.

When the regulations were approved last spring, there were two obvious sources for such finance. The first was called the Landlords Energy Saving Allowance, which for the past decade has permitted landlords to set energy saving fabric improvements against tax. A unique taxbreak, which sadly only 0.03 per cent of landlords had ever made use of before it was suddenly abolished last December.

The second option, and the one touted by the then Energy Secretary Chris Huhne when he introduced the original legislation, was Green Deal Finance. Then he told Parliament: “The Green Deal is a win-win opportunity for landlords by removing the upfront cost of work to upgrade the property making it cheaper to run, more environmentally friendly, and ultimately more attractive to rent.”

Huhne continued: “For those landlords who don’t take up the Green Deal, then we will get tough. So that by 2018 the poorest performing rented stock is brought up to a decent standard.”

The problem is that, again since May 2015,this Government has removed all official endorsement from the Green Deal Finance scheme – which never anyway ever really attempted to break into the non-residential buildings space.

Absent both the Landlords Energy Saving Allowance and Green Deal Finance, and without any official alternative on offer, it may yet prove possible that even by the end of the decade, too many people may be living and working in energy substandard buildings. And that really would be a terrible waste.

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