From 1 April 2018 it will be unlawful to grant a new tenancy of a property with an EPC rating of below E unless an exemption applies. This prohibition will extend to existing lettings of commercial property from 1 April 2023.
The obligation to improve the energy efficiency of buildings originated from the European Union. So what is the impact of the UK's departure from the EU? Do landlords still need to worry about the approach of the April 2018 deadline?
The short answer is yes.
The Energy Act 2011 obliges the government to introduce measures, including the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (known as MEES), to improve the energy efficiency of buildings. Therefore, although the Energy Act 2011 implements obligations set out in the EU Energy Performance of Buildings Directive 2010, MEES are enshrined in UK law. Unless the government repeals the legislation - and there is no indication of this - MEES will continue to have effect.
This means that, with less than 18 months to the deadline, landlords should get their portfolios in order. Failure to do so will lead them not being able to let properties lawfully with an EPC rating of below E, unless an exemption applies.
From 1 April 2023 (for non-domestic properties), and from 1 April 2020 (for domestic properties), the prohibition will apply to existing leases. So whilst the grant of a lease of a commercial property with an F or G rating now will not be a breach of MEES, the continuation of this lease after 1 April 2023 will be unlawful, unless an exemption applies. Landlords of domestic properties need to act even sooner, with the continuation of a lease with an F or G rating being rendered unlawful from 1 April 2020, unless an exemption applies. The landlord will be in breach of MEES for every day that the letting continues after 1 April 2023 (or 1 April 2020). Even if an exemption applies, the landlord will only be able to rely on it if it is registered on the PRS Exemptions Register.
With the approach of 2018, investors could find banks unwilling to lend on properties with poor EPC ratings. Landlord could also be faced with tenants requiring them to undertake energy efficiency works prior to the grant of a lease.
Brexit does not change these legal requirements as they are part of national law.
But local authorities and councils charged with monitoring compliance are already under-resourced. It is possible that they will find themselves without adequate manpower to monitor compliance and penalise those landlords who grant tenancies in breach of MEES. Ensuring that the UK complies with targets originally emanating from the EU may not be a priority for the government. Without effective enforcement, will MEES lack teeth?
And what about climate change policy more generally? MEES is not the only energy efficiency and carbon reduction measure that could be affected by Brexit. The Climate Change Act 2008 requires the government to meet a carbon reduction target of 80% of greenhouse gas emissions against 1990 levels by 2050.It is still too early to tell how Brexit might affect climate change policy. The government has taken some steps to provide assurances that it is 'business as usual'. For example, on 30 June 2016, a week after the referendum, the government announced that it agreed with the Climate Change Committee's fifth carbon budget report and published the draft Carbon Budget Order 2016 and accompanying Impact Assessment. The budget set equates to a target to cut carbon emissions by 57% against 1990 levels by 2032. The Carbon Budget Order 2016 subsequently came into force on 21 July 2016. This has been welcomed by green industry groups as an indication that the government is committed to meeting the UK's climate change targets.
We will continue to monitor developments, however, the EU has played an important role in securing international targets on climate change and then ensuring member states play their part. Once the UK has left the EU, who will monitor and encourage the UK's compliance with these targets?
Contributor: Alexandra Holsgrove Jones
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at August 2016. Specific advice should be sought for specific cases. For more information see our terms & conditions.