Buy-to-let landlords have certainly faced a challenging few months. Consider the 3% additional Stamp Duty surcharge on buy-to-let properties, changes to mortgage interest tax relief and the Right to Rent scheme as a few examples.
Add to these the proposed ban on letting agent fees and the ongoing uncertainty regarding the potential impact of Brexit and it is definitely not an easy time to be a property investor.
As if these measures weren’t enough, there is now less than one year until yet more regulation comes into force.
New Minimum Energy Efficient Standards set for April 1st 2018 are set to see many landlords unable to offer a new tenancy unless they make changes to their property.
If you are a buy-to-let investor, how will these changes affect you? What can you do to prepare? What punishments could you face if you choose to ignore the legislation changes?
Ryan Weston of Just Landlords Insurance Services, explains:
What are the Minimum Energy Efficient Standards?
“From April 1st 2018, it will be a legal requirement for any properties let in the private rental sector to have an Energy Performance Certificate (EPC) rating of at least E. These changes were outlined in the 2015 Energy Efficiency Regulations, making it a criminal offence for landlords to offer a lease on a new tenancy for properties that do not meet this criteria.
This regulation will come into force for new lets and for tenancy renewals from the 1st April 2018. For existing tenancies, landlords must improve their accommodation to a minimum EPC rating of E by 1st April 2020.
The legislation applies to domestic private rented sector properties in England and Wales, meaning that properties let under an Assured Shorthold Tenancy (AST) will be affected. In addition, properties let on a protected or a statutory tenancy under the Rent Act 1976 will also be eligible.
However, there are exceptions for certain properties, such as residential buildings set for use for less than 4 months of the year.
Will there be punishments for non-compliance?
In a nutshell, yes. Any landlord found to be letting a property after the 1st April date that does not comply with standards will be at risk of prosecution from their local authority.
Local authorities will be charged with enforcing compliance with Minimum Energy Efficiency Standards. Where an authority feels that a landlord has not complied with legislation, it can serve a compliance notice on the landlord requesting information.
Should this not be provided, or is deemed insufficient, the local authority can issue a penalty notice.
What will the penalties be?
For a single offence, penalties could accumulate to a maximum of £5,000. Additional penalties can be awarded if a landlord continues not to comply with an original penalty notice and carries on renting out a non-compliant property. Again, penalties are cumulative up to £5,000.
Further penalties can be awarded if a different tenant moves into a property that continues to operate under Minimum Energy Efficiency Standards.
What can landlords do to improve the energy efficiency of their property?
Some properties could only require a couple of small amendments in order for them to meet standards, while others will require more substantial works.
As Danielle Hughes of Kirwans law firm notes:
‘Landlords have to balance this work against the risk of them being in breach of the legislation and facing a criminal conviction and penalty fine. As long as the rating is at a minimum of E, it is up to them which methods they chose to improve the property. Careful assessment of the options and setting an appropriate plan of action over the next 12 months is the best way to ensure that the properties are ready and fully compliant by April 2018. Planning now will also have the obvious benefits of spreading the cost and making sure that the relevant third party contractors are available to undertake any necessary work.’
So what simple measures can investors undertake to improve the energy efficiency of their rental properties and thereby ensure they comply with the upcoming legislation?
Insulate walls and lofts-A very simple way for landlords to save on energy bills is to ensure that loft and cavity wall insulation is carried out on their rental accommodation. There are a number of grants that could be available to help with the cost of these measures.
Replace the boiler-Should they be able to, investors should think about replacing their boiler with one that is more energy efficient. Of course, this will hit them in the pocket initially, but the money they will save moving forwards will more than recoup the initial payment. What’s more, it will make the property more attractive for would-be tenants. Another step would be to update heating controls, such as room thermostats.
Let there be light-Investors can improve the lighting efficiency of their property in a number of different ways. Energy efficient lightbulbs are one way of cutting the cashflow. Landlords can also try low energy lighting, LEDs or compact fluorescent lights.
Double-glaze windows-Think about replacing all single-glazed windows with ones that are double-glazed. This is a sure-fire way of giving the EPC rating of a property a real boost.
Eliminate the draught-Make sure to assess all doors, loft-hatches, windows and floorboards to uncover any draughty areas. Once these problems have been sourced, think about the most efficient way of solving them. This could include using draught excluders, curtains and fillers.
This is by no means an extensive list of improvements that investors should look to make to ensure that their property meets Minimum Energy Efficiency Standards. Landlords should also be sure to check out schemes such as the Energy Company Obligation (ECO) to see if they receive funding to assist with any improvements.
Landlords should ensure that they are fully prepared for the Minimum Energy Efficiency Standards to come into force next April. If they aren’t, they can look forwards to substantial penalties, void periods and a failing investment!
Disclaimer: This article is for information only and is not official guidance, FCA approved, or legally precise. Just Landlords has used all reasonable care in compiling the information but make no warranty as to its accuracy.