EXCLUSIVE: Draft guidance seen by BusinessGreen could allow many landlords to take advantage of an exemption from new energy efficiency legislation
Thousands of landlords could win exemptions from new energy efficiency rules due to a lack of available funding for improvement measures, BusinessGreen has learned.
From April 2018, it will be illegal to rent out a property with the lowest energy efficiency ratings of F and G without a valid exemption under the government’s Minimum Energy Efficiency Standards regulations.
The rules are expected to impact around 330,000 buy-to-let homes in the UK and are regarded as a key measure in improving the energy efficiency of private rented properties.
However, official draft guidance seen by BusinessGreen reveals landlords will be exempt from the rules if they can prove they cannot access financing or grants to fully cover the upfront cost of installation.
Such funding comes in the guise of local authority or central government loans, or support under the Energy Company Obligation (ECO) scheme or Green Deal, the recently-revived programme that offers loans to homeowners to pay for energy efficiency measures, with the balance of the loan paid back through savings on energy bills.
However, with severe cuts to council funding, a scaling back of the ECO scheme to focus on the fuel poor, and the Green Deal only just re-launched following the government’s decision to scrap the scheme in 2015 after poor take up, concerns are mounting the guidance will open the door for thousands of landlords to avoid the new standards.
Joanne Wade, chief executive of the Association for the Conservation of Energy, fears the scarcity of ‘no cost’ funding schemes will mean many landlords will apply for an exemption to the standard, leaving thousands of tenants left in draughty, energy-hungry homes.
“What we are concerned about is that there might be too many landlords who claim an exemption by saying that they can’t find any funding,” she told BusinessGreen.
The problem could be exacerbated by the fact landlords will be able to self-certify themselves as exempt via an online register, with it left up to councils to enforce the new regulations and check the validity of exemptions.
“I think that what concerns me the most is that the extent that this works will depend on whether local authorities enforce it,” Wade said. “They are the enforcement agents, and they don’t have resources. They don’t necessarily know where their private rented properties are. And if a landlord applies to go on the exemptions register they self-certify – it’s up to the local authority to check whether that’s right or not. They are supposed to do that, but there is no real strong driver for them to enforce it.”
Jenny Holland, public affairs and policy specialist at UK Green Building Council (UK-GBC), expressed similar concerns. “As we all know local authorities’ resources have been squeezed until the pips squeak, with the result that environmental health officers find it difficult to go out there and proactively check stuff as opposed to reacting to complaints that are made by local people,” she told BusinessGreen.
There are also concerns over the length of the exemptions, which under the proposed rules would last five years unless there is a change of ownership for the property. As such, landlords could avoid complying with the standard for five years even if the Green Deal scheme expands in to their area or new grant funding such as ECO comes available.
The final guidance has not yet been published, but is expected this summer in time for the exemptions register to open on October 1.
BusinessGreen understands the government has been seriously considering changing the MEES legislation to require landlords to fund the cost of measures from their own funds, up to a defined cost cap, in light of the changes to both the Green Deal and ECO.
The government is under intense pressure to strengthen energy efficiency policies as part of its Clean Growth Plan, with the Committee on Climate Change warning slow progress on improving building energy efficiency is one of the main reasons the UK is currently on track to miss its emissions targets from the mid-2020s onwards.
However, successive ministerial reshuffles, the EU referendum, and snap election have all delayed progress on finalising the plans, with experts concerned the department may now adopt the guidance for the legislation as it stands ahead of the April 2018 implementation date.
Holland said changing the legislation to require landlords to fund the measures would be the best route forward.
“After the government withdrew funding from the Green Deal Finance Company (GDFC) lots of us who have been involved with this for a long time woke up to the fact that unless the regulations were amended to require landlords to make the improvements… they were going to be barely worth the paper they were written on because of this no upfront cost caveat,” she said.
She cited UK-GBC research which suggests the average cost of bringing a property up to Band E level would be around £1,400, with 70 per cent of landlords facing a bill of around £1,000. “These are not outlandish and extortionate sums of money,” she stressed. “I think it’s perfectly reasonable, particularly if you introduce a cost cap of say £5,000, to ask landlords to make those improvements to properties in which people are suffering ill health in some cases as a consequence of the cold and damp.”
But landlords have previously warned rents may rise if they are forced to pay for the measures themselves.
There is some funding currently available for landlords that fits the ‘no upfront cost’ criteria, but it is constrained in scope.
The GDFC – the firm set up to administer the Green Deal by the government – was sold earlier this year to Greenstone Finance Ltd and Aurium Capital. The firm has been re-launched and is now once again issuing new Green Deal loans, but the company is undertaking a ‘soft launch’ of the scheme as it finalises its rebranding and re-worked commercial offer. Nationwide the company currently boasts just six Green Deal providers who can undertake improvement work through the scheme, although the firm is working on expanding its partner network.
GDFC declined to comment for this article.
Consequently, many landlords will likely look to source local authority funding, which the government admits in its guidance is only being available “from time to time”, or access ECO funding, which has been radically refocused to target support on fuel poor households. Under the reforms to ECO made earlier this year local authorities will have some power to refer the most vulnerable households for efficiency measures, but the changes could leave many private rented properties unable to qualify for the scheme.
The Department for Business, Energy and Industrial Strategy (BEIS) insisted landlords will have a choice of funding options to support energy efficiency upgrades. “The Private Rented Sector regulations send a clear signal to landlords that they need to improve homes that are cold and expensive to run for tenants,” a spokesman said in a statement. “There are several ways to fund these improvements, and we expect landlords to use whichever of these are available to them to bring their properties up to scratch.”
Meanwhile, the government is under growing pressure to bring forward new policy measures to address energy efficiency in the UK’s building stock, which is responsible for around 45 per cent of the UK’s carbon emissions.
A Clean Growth Plan, due out by the autumn, is expected to set out some measures for how the UK will get back on track to meet its obligations under the Climate Change Act, including beefing up the energy efficiency policy regime in a bid to meet emissions reductions targets for the mid-2020s onwards.
In addition, the government this week faced accusations that it could be in breach of EU energy efficiency rules.
Writing on BusinessGreen, Andrew Warren, chair of the British Energy Efficiency Federation, argued that there were a host of unanswered questions about the extent to which the Energy Performance of Buildings Directive had been enacted and subqsequently enforced in the UK.
The Department for Communities and Local Government had failed to respond to requests for comment at the time of going to press.