From 1 April 2018 it will be unlawful to grant a new tenancy of a property with an EPC rating of below E (a sub-standard property) unless an exemption has been registered.
Does this prohibition apply to all leases? In particular, will landlords who grant long leases need to comply with The Energy Efficiency (Private Rented Property)(England and Wales) Regulations 2015 (the MEES Regulations)?
If a non-domestic property is let on a tenancy granted for a term of 99 years or more, it will be outside the scope of the MEES Regulations. This means that the letting will not be unlawful on or after 1 April this year, even if the property is sub-standard.
However, any sub-letting (for a term of less than 99 years) will be caught by the MEES Regulations.
So if a landlord of an F-rated property granted a lease for a term of 99 years on 5 April 2018, the letting would not be within the scope of the MEES Regulations. The landlord would not be doing anything unlawful in granting the tenancy. However, if the tenant then wanted to grant a sub-lease, that tenant (as landlord under the sub-lease) would need to comply with the MEES Regulations. It would either need to bring the property up to an E rating, or show and register an exemption.
Leases of domestic properties are not treated in the same way. Assured tenancies are one of the types of domestic lettings within the scope of the MEES Regulations. Provided that a tenancy satisfies the requirements set out in the Housing Act 1988, it will be an assured tenancy, regardless of the length of the term.
If the lease has an annual ground rent of above £1000 per year in Greater London, or above £250 per year elsewhere, it could be an assured tenancy. This could result in a 99 year lease of a property in London with an annual ground rent of, for example, £1500 per year being subject to the MEES Regulations.
In December 2017, the government issued its response to the consultation on tackling unfair practices in the leasehold market. Part of this considered the problematic drafting of the Housing Act 1988, which results in long leases subject to ground rents above the set threshold being classed as assured tenancies. One consequence of this is that if ground rent remains unpaid, the landlord can bring proceedings to terminate the tenancy. This can lead to a homeowner, who has paid a substantial premium for its leasehold interest, having the lease terminated. The government has stated that it will take action to address this and ensure that leaseholders are not subject to unfair possession proceedings.
This is part of the wider issue of "onerous" ground rents, and the government's intention to introduce new legislation so that new leases of houses (where not prohibited) and flats will have a peppercorn ground rent.
It is not clear how these issues will be addressed. If the definition of assured tenancies in the Housing Act 1988 is amended, it could have an impact on the tenancies that fall within the scope of the MEES Regulations.
Contributor: Alexandra Holsgrove JonesThis publication is intended for general guidance and represents our understanding of the relevant law and practice as at March 2018. Specific advice should be sought for specific cases. For more information see our terms & conditions.