Landlords don’t need to be afraid of MEES

Landlords have had a tough time of it lately, writes Samantha Collett.

What with additional tax to pay, stamp duty increases, the withdrawal of allowances and ever tightening and changing legislation – it’s a whole whammy of stuff that makes you think, why buy to let?

The new head bender to add to the mix is the introduction of Minimum Energy Efficiency Standards (MEES), which took effect from 1 April 2018.

This new piece of legislation affecting landlords means residential properties with lower than an ‘E’ EPC rating cannot be rented out, and non-compliance attracts a fine of up to £5,000.

In the current climate that very much feels like yet another attack on landlords.

Clearing up MEES misconceptions – everything you need to know

But it really isn’t.

Yes, the headline figures may look onerous: from 1 April 2018 no new tenancies can be started if the property is below an ‘E’ rating, and by 1 April 2020 all rental tenancies (including existing) are not legally permitted if the property is below an ‘E’ rating.

Reality check

But the reality is that most properties need very little to actually make the ‘E’ grade.

“We’re talking a few hundred pounds,” says David Harrison, an EPC assessor at Agents Plus. “If a landlord can’t find a few pounds to invest and future-proof their business, they really shouldn’t be a landlord.”

Improved energy efficiency means less money spent on power to warm a home, and given the private rented sector has a disproportionate amount of tenants living in fuel poverty, it’s an issue that needs addressing.

Typically, the average energy bills of a ‘G’ rated property are £2,860 per year, compared with £1,710 in an ‘E’ rated property – a difference of £1,150 per year, or 40% lower energy costs annually, according to the Domestic Private Landlord Guidance (March 2018).

Are you ready for MEES? Click here to find out

“Landlords are getting overly concerned about MEES when in reality some simple measures can get them to the required standard,” says Harrison, who emphasises the importance of liaising with an energy assessor to ensure the right measures are made to the property.

“Most landlords have EPCs dating back a number of years, the first port of call should be to the original EPC and the recommendations page as that will show what measures can be implemented to have an impact. If you’re unsure, contact your original assessor and ask them.

“EPC assessors can easily produce predictive reports that can show what changes need to be made to a property so that it complies.

“Many people don’t realise the simple things they can do, such as installing loft insulation or fitting a high heat retention storage heater. These are all very cost effective measures which shouldn’t be too onerous on the landlord.”

‘No cost’ measures

But if landlords are struggling for cash, there are ‘no cost’ measures available through the Green Deal – a finance loan deal whereby the landlord introduces the energy efficiency measures for no upfront cost and the tenant pays back the loan through savings on the energy bill.

This ‘Pay As You Save’ scheme includes a principle called the Golden Rule, which states that the first year’s repayments must not exceed the estimated first-year saving, and the overall repayment period must not exceed the lifetime of the measures installed.

This means a tenant who pays the Green Deal loan via their electric bill should enjoy energy bill savings equal to or greater than the charge.

What impact will MEES have on landlords and lenders?

In theory it sounds great, and a win-win situation. However, in practice, it’s a little more complicated due to the loan being on the property and not the person. This means if you sell the property, the loan remains. Also, tenants can be a little wary about paying an enhanced premium every month for the energy efficiencies – even if their bills are lower because of them.

“In reality”, Harrison says, “most landlords fund the work from their own pocket, with most improvements costing less than £1,000.”

Self-certification

Interestingly though, governmental guidance allows landlords an exemption if they cannot access ‘no cost’ ways to improve their energy efficiency, via a self-certified narrative explanation for why no (or insufficient) funding could be obtained to fully cover the cost of installing an improvement. R

Registering for exemption is done via a website and no charge is levied – although it should be noted that the Exemptions Register is open to the public and enforcement authorities will likely monitor it to ensure that exemptions are registered in compliance with the regulations.

Once the property is registered as exempt, this lasts for five years, but it is not transferable to a new owner.

What questions still remain on energy standards? Find out here

However, if the stats are to believed, perhaps landlords are missing a trick if they don’t undertake such improvements. A 2016 report by Sustainable Homes claims introducing more energy efficiencies reduces both rent arrears and voids – which has got to be good for business.

“Before landlords do anything, they should consult their EPC and talk to an energy assessor,” says Harrison. “This will help them to understand the minimum requirements to meet regulations, and also plan for the future. Securing the property for the long term via cost effective improvements just needs a bit of planning.”