Landlord’s Requirements are set to change. It will become increasingly important for property investors to consider the ‘green’ credentials of their property portfolio. For some time, we have been highlighting that environmental efficiency should be a primary consideration for investors as they look at different property investments.
Until now, it has just made good sense to do this from a future-proofing perspective. However, it is increasingly likely that if investors own properties that do not meet minimum environmental standards, they will be forced to contend with high retrofitting costs.
Private landlord’s in the UK have legal requirements they must adhere to, including but limited to electrical safety, fire safety and gas safety. This article explores the likely new Landlords from an environmental perspective. The UK is likely to lead the way by introducing environmental standards for all rental properties.
Current Requirements for Landlords
Currently, landlords in the UK are regulated by the Domestic Minimum Energy Efficiency Standards (MEES) Regulations, which set minimum requirements for residential properties that are rented. These are specifically:
- All residential properties are required to have an Energy Performance Certificate (EPC)
- Since 1 April 2020, landlords can no longer let properties that have an EPC rating of F or G. (A being the highest / best EPC rating).
- If landlords own a property which is let with an EPC rating of F or G, they are required to immediately take action to improve the energy performance. The property should be at least an EPC rating of at least E.
At the moment, if a landlord owns and rents a property that has an EPC rating of F or G they are not required to spend more than £3,500 (including VAT) on energy efficiency improvements. Full details can be found on the UK Government website.
Potential Upgrade For New Legal Landlord Requirements
In a sign of things likely to come, discussions have circulated in the media at the COP26 climate change conference which suggests the UK government will soon introduce new rules to prevent landlords from renting out property that has an EPC energy rating of D or below.
Information we are hearing at PropTechPioneer.com suggests these changes are likely to be introduced in 2025.
What does this mean for Landlords?
For landlords renting newly built property or property that has been built relatively recently, it is unlikely that a significant amount of remedial action will be required. This is because most new build property in the UK typically exceeds EPC performance rating C.
However, this situation is likely to be a much more significant concern for landlords who own an older property, particularly for older Victorian property, which is notoriously difficult to improve energy performance ratings for. Changes and retrofitting required are likely to include:
- Insulating the property (in the roof and walls)
- Installing solid floor insulation
- Replacing existing windows to double glazed windows
- Replacing older boilers
- Replacing any gas appliances with more energy efficient electric appliances
- Fitting car charging stations
- Solar water heating
- Installing low energy lighting
- Draught proofing.
What will it cost landlords?
In the past, the UK government has set limits on how much landlords will have to pay to retrofit their properties and bring them up to standard. It is far less likely that in the future any limits will be set on these costs. The government is under significant pressure to meet climate targets and it seems unlikely that those who own investment properties will be at the top of the list of people the government wants to help.
According to the UK government website www.gov.uk, the costs to improve energy efficiency are likely to be in the region of the following.
|Recommended measures||Indicative Cost (£) – Low||Indicative Cost (£) – High||Typical Annual Savings (£) p.a.|
|Hot water cylinder insulation||15||30||142|
|Low energy lightin||20||–||21|
|High retention storage heater||1,200||1,800||319|
|Solar photovoltaic panels||5,000||8,000||287|
It is not difficult to imagine a situation where landlords could be required to spend tens of thousands of pounds simply to rent their property legally.
Early Signs of Change
There are early signs from those in the ‘know’ of what is set to come.
Many landlords in the Registered Provider market (social landlords who let affordable property to those who qualify to occupy it) have already started selling up those parts of their portfolio that do not meet minimum energy requirements.
Many larger Registered Providers have already sold significant parts of their portfolio and are taking advantage of favourable market conditions.
Why are landlords choosing to sell rather than upgrade?
Simple, cost. The reality is, in the wake of supply chain shortages, build price inflation and shortages of contractors, the cost of this retrofitting work is rapidly increasing.
For all but a few landlords, it is simply more economically viable to sell their property whilst favourable market conditions exist and replace it with the newer property.
Landlord’s Legal Requirements Checklist
This article has focused on th elikely new EPC regulations we expect will come into force. We thought it might be useful for to provide a quick re-cap of the current landlord requirements. These need to be addressed prior to the start of the tenancy.
Energy Performance Certificate – all properties must have an EPC before marketing can begin.
Gas Safety Certificate – is required if there are any gas appliances, boilers or heaters in the property
Furniture and Furnishings (fire safety) Regulations – all furniture must comply with government regulations
Electrical Safety Standards – All fixed electrical installations must meet the Electrical Safety Standards.
Electrical Equipment (safety) Regulations – All electrical appliances and equipment supplied to a rental property must be safe
The Smoke and Carbon Monoxide Alarm Regulations – all rental properties must have a smoke alarm on every floor of the property and a carbon monoxide alarm must be fitted in every room that contains a solid fuel burning appliance. We advise that in addition to this, landlords install carbon monoxide alarms in every room of a property that contains a gas or oil burning appliance.
Property Licence – some local authorities require rental properties to have a licence
Mortgage Consent – you will need consent from your mortgage provider that you may let your property
Leaseholder Consent – you will require permission to sublet your property if it is a leasehold property.
Insurance Consent – You must inform your insurance company that the building is being let
Deposit – The security deposit collected from the tenant at the start of the tenancy must be protected by an approved deposit scheme. The landlord (or Agent) must provide the tenant with how the deposit is being protected.
You can find more details about Landlord’s Requirements in our Checklist which is available here.
What should you do?
If you are a landlord and own an older property now is very much the time to start thinking about what your strategy should be for your property. You may want to start calculating the cost of retrofitting versus the cost of selling and buying a new build property that will meet the expected new standards.
If you’re considering buying an investment property in the near future, the changes to the EPC ratings are another factor as to why you may want to buy new build as opposed to a second hand property. You can read more about the pro’s and con’s of buying new build versus second hand property here.
If you’d like to discuss your options with me, don’t hesitate to drop me an email at [email protected].
Important notice: Proptech Pioneer and its associated companies seek to provide investors with guides, information and tools, but we cannot guarantee this information to be accurate or perfect. You use the information at your own risk and accept no liability if you rely on this information. Proptech Pioneer is not a tax advisor, accountant conveyancer, lawyer, financial advisor or mortgage advisor. You should seek independent advice from independent professionals before making any investment decision.