From 1 April 2018, it will be unlawful for a landlord (of residential or commercial premises) to grant a new tenancy if the property has an energy performance certificate (EPC) rating lower than band "E". Failure to comply will expose the landlord to enforcement action including financial penalties.

Although only applying to new lettings from 1st April 2018, this will be extended to include existing residential lettings from 1 April 2020 (and 1 April 2023 for commercial property). With 1st April only a few weeks away, landlords should have assessed their housing portfolios to assess energy ratings and developed a strategy to deal with any premises with rating “F” or “G”.

The following summarises some of the considerations:

Any letting where an EPC is required will be caught by the Regulations, although the Regulations do not apply to sales. Certain exemptions to the need for an EPC exist and those properties exempted will – by definition – not be subject to the Regulations, which will apply to most residential and commercial lettings.

Lettings granted of properties with an energy rating below “E” will not be invalidated and will still be enforceable. The landlord will, however be in breach of the Regulations and exposed to enforcement action including financial penalties. Enforcement will be by Local authorities (residential premises) and Trading Standards Officers (commercial premises) and there are varying levels of penalties: -

• A commercial letting breaching the Regulations could result in a fine of £10,000 or 20% of the rateable value of the property whichever is the higher, up to a maximum of £150,000.
• The equivalent residential penalty is a maximum of £4,000 per letting.

There is also a "naming and shaming" element which involves the names of landlords in breach being published on a publicly accessible register (this is referred to as a "publication penalty") and could cause reputational damage.

Exemptions to the Regulations can be applied for, in very limited circumstances – e.g.

1. where, despite reasonable endeavours, the landlord cannot obtain any necessary third party consent to carry out the works to increase energy efficiency ratings (for example where the lease does not give the landlord the right to enter the property to carry out the works and the tenant does not agree to the landlord doing so);

2. where an independent surveyor states that the relevant works to increase energy performance rating would devalue the property by more than 5%;

3. following certain events e.g. a new landlord having acquired the property or the grant of a renewal lease under the Landlord and Tenant Act 1954;

4. where all "relevant energy efficiency improvements" have been carried out, or there are none which can be made.

If an exemption does apply, it must be validly registered. In these circumstances, the landlord will lawfully be able to let the property even though it is sub-standard. The exemptions at 1,2&4 all last for five years and exemption3 lasts for six months. The PRS Exemptions Register has been open for registrations for over a year and any such exemption must be registered before the grant of a new tenancy. The cost of registration may be prohibitive. Exemptions do not pass to a new landlord i.e. if buying from an exempted landlord, it would be necessary to either improve the EPC rating or apply for further exemption personally