EPC and Listed Buildings/Buildings in Conservation Areas
The Department of Communities and Local Government (DCLG) have updated their guidance in relation to the vexed question of whether listed buildings and buildings in conservation areas may be exempt from the need to obtain an energy performance certificate (EPC) when such a building is rented out (or sold). This is important because the requirement to provide an EPC is linked to the Minimum Energy Efficiency Standards (MEES) which will come into force from 1st April 2018. As from that date on any new letting the property must either -
have a minimum EPC rating of E (this extends to existing lets from April 1st 2020)
have an applicable exemption from the requirement to meet the MEES standard
Exemptions and listed buildings
If a residential building is exempt from the requirement to have an energy performance certificate when it is rented out (or sold) then this minimum E rating standards does not apply. For listed buildings and those in conservation areas, this exemption status is crucial, as many of these properties will be incapable of reaching that level due to the nature of the building/area. An exemption from MEES requirements when they are rented out (or sold) would allow the landlord to continue to rent out these properties. The problem though, is that the legislation is not clear.
Since the EPC was introduced, the general understanding has been that listed buildings are exempt. However, this question hinges on the interpretation of the relevant EU Directive. This is badly drafted and unclear so the general understanding may not be safe to follow. Even after Brexit the EU directive will continue in force, unless and until the UK decide to change it.
What is exempt?
What the exemption from having to have an EPC says is that buildings protected as part of the designated environment or because of their special architectural or historical merit are exempt from the requirement to obtain an EPC "insofar as compliance with minimum energy performance requirements would unacceptably alter their character or appearance". This does not make clear what would and would not unacceptable alterations.
If this condition is met the property would be exempt from the minimum E rating requirement but what does this condition actually mean for landlords? It means that if the property is exempt from the obligation to have an energy performance certificate, even if one was in place it would be treated as being obtained voluntarily; not as a requirement despite the property being rented out (or sold). As such, an F rated property that is exempt would still be sellable or rentable. It is only where there has been a letting (or sale) AND there is a legal requirement for an EPC to be in place where the property must meet the minimum E rating on the energy performance certificate. In addition, while a landlord can be penalised for not having an EPC they can still rent out the property, though they face penalties for not having an EPC. The penalties for not having an EPC are significantly less than the penalties for renting out and F or G rated property when you are required to have an energy performance certificate however.
What does the Government Guidance say on this issue?
To comply with minimum energy performance requirements, many of the recommendations in an EPC Report, e.g. double glazing, new doors and windows, external wall insulation and external boiler flues, would likely result in unacceptable alterations in a majority of historic buildings
The Guidance goes onto explain that these can include buildings protected as part of a designated environment or because of their merit. It gives the example of listed buildings or buildings within a conservation area. In the cases mentioned above where the result would be unacceptable alterations then the Guidance suggests that an EPC would not be required so that the MEES requirements would not apply either. For the first time the Guidance makes it clear that these provisions apply to non listed buildings which are located within any conservation areas. This is consistent with the wording of the EU directive.
The recommendations report containing the EPC will usually recommend works of this nature which would be treated as unacceptable alterations but it can also set out others which would not adversely affect the building. The problem is that many energy performance certificates would have a mix of recommendations for works, some which would impact adversely and others which would not. Also, if the property falls just short of an E rating it may be possible to bring it up to an E rating by just doing work that does not adversely impact. The Guidance goes onto say that building owners will need to take a view as to whether this would be the case for their buildings. It has to be done on a case by case basis. The Guidance suggests that if there was any doubt as to whether works would unacceptably alter the character or appearance of a building, building owners may wish to take advice of their local planning authority’s conservation officer.
However, this is only guidance and interpretation offered by DCLG as to the meaning of the EU Directive. Ultimately, only Courts can decide these issues. The European Court of Justice at the moment would be the ultimate arbiter.
Importantly, the foreword in the Guidance states -
This Guidance aims to explain how the requirements work in practice and any interpretation of the Regulations, i.e. the Directive, is offered only as a guide. DCLG cannot provide legal advice. It will be for individual themselves to take a view on whether or not they follow the requirements of the Regulations and in cases of doubt should seek their own legal advice.
This advice also produces something of a "chicken and egg" situation. Unless you actually have an EPC you will neither know whether the property meets the minimum E requirement; nor the nature of the recommendations in order to be able to judge whether or not they might prove unacceptable.
Whether or not a property is exempt from having to have an EPC is also important when a property is being privately rented out. It should be noted that one of the requirements when a property is let is to provide an EPC when one is required. Otherwise, Section 21 cannot be relied on as the obligation to provide an energy performance certificate has not been fulfilled. The RLA is aware of at least one case where a tenant has challenged the validity of a Section 21 Notice on this basis, although we have no information about the outcome. There could well be challenges in other cases.
If no EPC is required at all, then the property would be outside the scope of the minimum energy efficiency standards requirement for a minimum E rating. In this situation there is no need to register the property on the PRS Exemptions Register.
What does the RLA advise?
The RLA itself is not able to offer legal advice because clearly the EU Directive is open to interpretation. All we can do is pass on DCLG Guidance and leave it to individual landlords who own a listed building or building located in a conservation area to decide what to do. If need be you should take your own legal advice. If challenged there are potentially significant penalties for not complying with the minimum E EPC rating obligation. However, there must be real doubt as to whether on the wording of the EU Directive listed buildings and buildings in conservation areas really are exempt from having to have an EPC. After all, getting an EPC does not damage the property.
For landlords who are concerned about the potential risk, one suggestion to consider when renting out property is to have an EPC in place and then to clarify with the local conservation officer what work recommended by the EPC is permissible and to carry out these works which the Conservation Officer will agree to in order to either attain a minimum E rating or to get as close as possible to it. You would need to obtain an EPC in this situation if you do not already have a current one.
There is an exemption where works are not permitted because the necessary consents cannot be obtained but this must be entered on the PRS Exemptions Register. The PRS Exemptions Register is the register where any exemption for the MEES requirement must be claimed. The exemption is not effective unless it is recorded in this register. This is one possible solution to the dilemma. Indeed, if you already have an EPC for the property, it is going to be difficult to decide whether or not it was actually required in the first place so you are quite possibly subject to the MEES requirements already.
Updates to EPC methodology
In any event, because of recent changes to EPC methodology, you should consider getting an updated EPC before proceeding. It may be the case that the rating on the EPC will have been upgraded so either a minimum E requirement is met or less works are required. What you could then do would be to carry out the works which are permitted and register an exemption on the PRS Exemptions Register for other works which the conservation officer will not agree to.
Regrettably, unless and until there is a clear Court ruling there is no certainty which can be guaranteed. Landlords will have to assess the level of risk they wish to take when dealing with these type of properties.