Buy-to-let landlords face energy efficiency bills
Owners have a year to comply with improved insulation standards
by: James Pickford
Landlords are facing a “ticking time bomb” under rule changes that will make it illegal to rent out buildings that fail to reach a minimum standard of energy efficiency.
Energy Performance Certificates (EPCs) were introduced a decade ago as a way of measuring the energy efficiency of buildings, using a system of grades from A, the most efficient, to G, the least.From April 2018, owners will be barred from granting new tenancies or renewing existing ones in properties that fall into the bottom two categories, F and G, unless an exemption applies. For residential landlords, all their tenancies will need to comply by 2020 regardless of when they were signed; commercial landlords will need to bring all tenancies into line by 2023. Government figures suggest one in five commercial properties in the UK fall into the F and G categories.The Department for Business, Energy and Industrial Strategy said: “From April 2018 all landlords will be required to ensure their premises meet the new minimum energy efficiency standard to help ensure a high quality of living for all tenants, and bring down consumer bills. This could lead to savings of more than £600 a year for properties.
”Property experts warned that many landlords remain unaware of the need to bring their buildings up to required standard, using improvements such as double glazing, loft insulation or draught excluders. Gary Strong, a director at the Royal Institution of Chartered Surveyors, said: “It’s a ticking time bomb. Buy-to-let landlords are commonly the ones who are less aware, because they don’t receive professional communications about it. A lot of landlords who own these properties are in for a bit of a shock.”Richard Lambert, head of the National Landlords Association, said: “There are so many people who aren’t plugged into the information networks . . . Although there’s been a long lead time I suspect it may have dropped off people’s radars.”A number of exemptions will apply, such as when the cost of making the improvements exceeds the energy cost savings they will deliver over the subsequent seven years — known as the “payback test”. A five-year exemption is also given where making the improvements would reduce the market value of the property (subject to an independent report) by 5 per cent or more.
Listed buildings also gain some protection from the rule change, in that if the energy-related works unacceptably alter their character or appearance they will not be required. But an EPC will be necessary if compliance would leave it unblemished. Research commissioned in 2014 by the Green Building Council found that the average cost of reaching band E from the less-efficient bands was £1,421, while the average annual saving delivered was £409 a year. More than 70 per cent of properties in the study were able to reach band E for less than £1,000.
Improvements to buildings without cavity walls or floor cavities may be expensive, however. Other complications may ensue where the landlord does not own the freehold of the building in which the property is located. Mr Strong said: “A landlord of an apartment in a flat-roofed building may have difficulties insulating the roof, for instance, because in most cases they won’t even own it.”A survey carried out by the NLA found most landlords were prepared to put in between £1,500 and £2,000 of their own money to improve a property, on the understanding they were getting additional funding from other sources. But if costs rose more than £2,000 their willingness to put the money up tailed off, the NLA said. Mr Lambert pointed to a number of recent costs and tax hits to the buy-to-let market, from the loss of higher-rate tax relief on mortgage interest to higher stamp duty rates and new lending constraints.“This is one more thing as landlords’ costs are being squeezed left, right and centre. All of these are additional cost pressures on profitability. There’s a limit to how far rents can move to restore that margin,” he said.The business department said an exemptions register for commercial landlords will open tomorrow, while a similar facility for residential landlords would be made available in the autumn.
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