GUIDE TO MINIMUM ENERGY PERFORMANCE STANDARDS/EPCs FOR LISTED BUILDINGS ETC
It is unclear whether landlords of listed buildings have to provide EPCs to their tenants when the property is rented out. It is also unclear whether landlords of listed buildings are subject to the Minimum Energy Efficiency Standards which take effect from 2018 onwards. From April 2018 for new lets and from April 2020 for existing lets the property will have to have a minimum E rating but these standards only "bite" if a property has an EPC. There will also be an exemption to prevent excessive sums having to be spent on works but as yet no details of this are settled. As from the 1st October 2015, in order to rely on Section 21 to regain possession, you must have supplied an EPC to the tenant, if one is required.
The requirement for an EPC
The legal basis in the United Kingdom for the requirement for energy performance certificates on the sale or letting of buildings are contained in the Energy Performance of Buildings Directive (Recast) 2010/31/EU. This lays down, among other things, a common methodology for assessing the energy performance of buildings. Paragraph 1 of Article 4 to the Directive headed "Setting of Minimum Energy Performance Requirements" lays down a number of measures which member States are required to implement. These include -
- Ensuring that minimum energy performance requirements for buildings are set and that energy performance is to be calculated in accordance with the methodology referred to in Article 3 of the Directive.
- Ensuring that minimum energy performance requirements are set for building elements. Member States can differentiate between new and existing buildings.
Paragraph 2 stipulates that Member States may decide not to set or apply these requirements in certain categories of buildings, including "Buildings protected as part of a designated environment or because of their special architectural or historical merit, insofar as compliance with certain minimum energy performance requirements would unacceptably alter their character or appearance".
Member states are required to see that these requirements are complied with in the case of new buildings or substantial refurbishments. In practice for listed buildings this means the EU dimension is only potentially relevant to renovations which an owner may choose to carry out and is not relevant to across the board mandatory minimum energy efficiency requirements.
Under Article 11 (Energy Performance Certificates) Member States are required to lay down measures to establish a system of certification of the energy performance of buildings. Energy performance certificates are to include the energy performance of a building. The certificate must include recommendations for improvements.
Article 12 (Issue of Energy Performance Certificates) goes onto provide that Member States must ensure that an EPC is issued for buildings which are constructed, sold or rented out to a new tenant. When buildings are constructed, sold or rented out the EPC or a copy of this must be shown to the prospective new tenant or buyer and handed over to them.
Importantly, Paragraph 6 of Article 12 provides "Member States may exclude the categories of buildings referred to in Article 4(2) from the application of paragraphs 1, 2, 4 and 5 of this Article." Paragraph 1 requires the issue of an EPC. Paragraph 2 requires that the EPC is produced/handed over when a property is, amongst other things, rented out. Paragraph 4 stipulates that the energy performance indicator of the EPC must be stated in advertisements for, amongst other things, rent. Paragraph 5 relates to jointly owned property.
EPCs and Minimum Energy Efficiency Standards
Whilst EPCs are key to the implementation of minimum efficiency standards in the PRS, because of them being triggered by a low EPC rating, the legislation requiring these is not of European origin. It is imposed by domestic UK legislation under the Energy Act. 2011. However, under that Act it is a prerequisite for having to comply that there is a valid EPC in the first place.
It should be noted that beside listed buildings etc., other buildings are exempt such as places of worship, temporary buildings, short term use residential buildings and small buildings.
When it comes to minimum energy efficiency requirements it makes sense to exempt listed buildings from the requirements which must be devised under Article 4 insofar as compliance with these requirements would unacceptably alter the character or appearance of the building. Simply having an EPC prepared and issued could not damage the building. This kind of qualification only appears in the case of protected/listed building; not in any of the other Article 4(2) exemptions There is no similar qualification in respect of the other types of exempt buildings listed out in Paragraph 2 under Article 4. There are other qualifications but these relate to by whom and how the building is used so they do not pose any similar difficulty in interpreting exemptions.
When it comes to the Article 12 exemption from the need to obtain/issue an EPC the reference is to excluding "the categories of building" referred to in Article 4(2). The reference is to categories of building. When it comes to interpreting Article 4 exemptions for the purposes of the Article 12 exemption provisions it could therefore be argued that it makes sense to omit the qualification "insofar as compliance with certain minimum energy efficiency requirements would unacceptably alter their character or appearance". This is about the categorisation of work which can be done to the building; not the building's categorisation.
Therefore, if this is legally the permissible approach, in the context of the Paragraph 6 exemption in Article 12 it should be read as giving authority to exempt "buildings officially protected as part of a designated environment or because of their special architectural historical merit" from the scope of the need to issue/provide an EPC disregarding the caveat as this is nothing to do with the category into which the building falls. After all the caveat is about categorising the nature of the requirements themselves and not the nature of the building.
Implementation in the UK
It needs to be stressed that exemptions are discretionary so a Member State can decide whether or not to take advantage of them.
The provisions of the Directive (i.e. in respect of EPCs but not minimum energy efficiency requirements) are implemented in England and Wales by virtue of the Energy Performance of Buildings (England and Wales) Regulations 2012. Regulation 5 (application of Part 2) states that this part does not apply to buildings officially protected as part of a designated environment or because of their special architectural historical merit, insofar as compliance with certain minimum energy performance requirements would unacceptably alter their character or appearance. This is a copy out from the terms of the Directive itself, in line with Government policy to implement directives generally by "copy out". Part 2 requires -
- An energy performance certificate on sale and rent.
- An EPC on marketing.
- Provisions to what an EPC must incorporate.
- Display of EPCs in larger buildings used by the public.
- Provision of the EPC indicator in advertisements.
- Production or copies of EPCs.
As can be seen none of these duties could be said to endanger the fabric of protected/listed buildings. Nevertheless, the caveat has been copied out as if it were an exemption from the requirements under Article 4 which can involve physical interference with the building, as opposed to an exemption from the requirements under Article 12 relating to EPCs and their production.
However, this is what the UK spells out so, on the face of it the regulations therefore only exempt listed buildings from the need to provide an EPC where you can demonstrate that it would not unacceptably alter the character/appearance of the building, which is a palpable nonsense. If they were exempted from the requirements how could you know which building is or is not exempt?
Would the UK be in breach of the directive if the exemption simply referred to listed buildings?
Article 12 does give the discretion to the UK Government to exclude certain categories of buildings and it is this cross reference under this exemption under Article 12 to the exemption under Article 4 which is causing the problems.
History of the exemption
The history of how this came about is set out in the Impact Assessment regarding the introduction of the recast Directive. The exemption did not appear in the earlier EPC Regulations. This is attached. It focuses on Article 4; not the Article 12/13 provisions which actually relate to EPCs. The figures in the Assessment assume that ALL listed buildings are exempt!
Resolving the problem
As already indicated, this dilemma could arguably be solved by simply omitting the caveat regarding unacceptable alterations. Then the reading of Article 12 would be such that the exemption can be legitimately framed in the terms of the category of the building itself. So, all listed buildings would be exempt, rather than determining exemptions by the nature of works and whether they may or may not affect its character/appearance. However, the UK has not so far done this in the UK Regulations, which, taken at their face value, only exempt them in terms of the caveat. This is because of the discretion accorded to the UK to determine whether to apply exemptions.
So in reality, in terms of an EPC, the caveat is meaningless. Therefore, a landlord cannot know if an EPC is needed before they have an EPC for the property.
In any case an EPC does not determine what the Article 4 requirements are. This is the function of building regulations. All an EPC does is assess the rating, and separately make recommendations on work which may be done within the requirements. On the other hand, landlords can pre-classify works in accordance with efficiency improvement requirements laid down to comply with Article 4. This allows a landlord to determine in advance whether or not the building can be damaged as a consequence. Implementation of any requirements can then be planned accordingly.
It is arguable that the UK Government has chosen to implement the exemption in relation to the preparation of EPCs in terms of likely damage so that in effect all protected/listed buildings to be rented out or sold have to have an EPC because the conditions of the UK formulation of the exemption will never be met. The simplest solution therefore is to omit the caveat in Regulation 5 (Paragraph (a)) so that the qualifying words regarding unacceptable alterations are omitted. The UK Government would have to be persuaded that this is permissible based on the argument set out above.
Implementing Minimum Energy Efficiency Standards
The UK Energy Act 2011, which has nothing to do with EU law, allows for exemptions to be prescribed by Regulations in relation to PRS minimum energy efficiency standards. In their response to the consultation when the Minimum Energy Standards Regulations were introduced, the Government stated that they proposed to mirror the scope of the Energy Performance of Buildings (England and Wales) Regulations 2012 so only those buildings which may be required to obtain an EPC will be in scope. They then listed these out and again the caveat regarding unacceptable alterations to the character or appearance of the building was added. This clearly conflicts with what the Minister said at the time but the Regulations must prevail over what was announced.
We also need to bear in mind that Guidance on the need for EPCs was published "Improving the energy efficiency of our buildings". This was published in April 2014. This states that an EPC is generally not required where a building is protected as part of a designated environment or because of their special architectural or historical merit where compliance with certain minimum energy efficiency requirements would unacceptably alter their character or appearance. In other words, it is yet another copy out from the EPC Regulations, repeating the Directive again.
The Listed Building "Exemption" for Minimum Energy Efficiency Standards
The relevant regulations containing the exemption from the minimum standards made in the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015. In effect there is a cross reference to the energy performance of building regulations relating to EPC requirements.
The application of the minimum standards which is purely UK domestic legislation is framed by what is domestic PR property and non-domestic property. This is provided for in Section 42 of the Energy Act 2011. In the case of domestic PR property this is property let under certain types of tenancies (e.g. an assured shorthold). Under Section 43 of the 2011 Act the Secretary of State must make regulations for the purposes of securing that a landlord of a domestic PR property may not let a non-compliant property. This is to apply to such description of domestic PR properties as is provided for in the regulations in relation to which there is an EPC in place. The property must then fall below the level of energy efficiency (ascertained under an EPC), i.e. below an E rating. Key therefore to the application of the regulations is not only the existence of an EPC, but also that they must fall within the prescribed description of dwellings which rank as a domestic PR property. The supposed exclusion for listed buildings is described in the same terms as in the EPC Regulations.
The relevant regulation is Regulation 19 of the Energy Efficiency (Private Rented Sector England and Wales) Regulations 2015. It states "for the purposes of the Act (i.e. the Energy Act 2011) domestic PR property means property which is within Section 42(1) of the Act subject to Paragraph (2))".
Importantly for our purposes Paragraph (2) goes onto say that the property is not a domestic PR property if -
- It was not required and is not part of a building which is required to have an EPC by the Energy Performance of Buildings (Certificates and Inspections) (England and Wales) Regulations 2007 (the predecessor EPC regulations) and
- It is not required and is not part of a building which is required to have an EPC by the Building Regulations or the EPB Regulations (i.e. the 2012 Energy Performance and Building Regulations which are currently governing EPCs.
The EPB Regulations provide an exemption under Regulation 5(1)(b) for "buildings protected as part of a designated environment or because of their special architectural or historical nature, insofar as compliance with certain minimum energy performance requirements would unaccepted alter their character or appearance".
It is important to note the words "insofar as" because this suggests that if there would be no unacceptable alterations then work could be done.
In terms of a listed building this would mean that if there was a roof space then loft insulation would be possible. On the other hand, external cladding or internal solid wall insulation could well damage the fixtures of the building unacceptably. There are not likely to be cavities in most of the listed buildings. Double glazing is normally unacceptable. Secondary glazing may be acceptable depending on the circumstances.
Importantly, the legislation is silent as to who makes the judgment.
The two paragraphs above also raise a particular problem because on the face of it they are conjunctive. The earlier 2007 regulations did not include any exemption for listed buildings. Therefore, because these are apparently conjunctive provisions, arguably they would not comply at all. They only fall within paragraph (b) potentially; not paragraph (a). Can the word "and" in this context be read as "and/or"? "And" does not necessarily have to be conjunctive, so both requirements do not necessarily need to apply. It is accepted as a right interpretation that in some instances it can be disjunctive, meaning that one or the other may apply.
Therefore, again, the result is that a number of further uncertainties are introduced by the actual wording of the exemption. Similar issues of course arise in the case of rented dwellings in conservation areas although more extensive work may be possible as these essentially protect the exterior rather than the interior of properties.
Impact on landlords
In a recent survey of our members regarding the implementation of energy efficiency minimum performance standards, considerable concern was raised by members about the application of the regulations to listed buildings. Not unsurprisingly a number pointed out the considerable practical difficulties, as well as legal constraints, around the works to listed buildings.
No need to comply if there is no EPC
The conundrum is that the exemption under those Regulations is yet again a copy out which is therefore in effect transposed into these regulations which lay down the requirements for the Minimum Energy Efficiency Standards. The regulations implementing Minimum Energy Efficiency Standards have to be read in terms of the Energy Act 2011 itself. Under Section 43(1) of that Act not only does the property have to fall within the description of domestic privately rented property as provided for in the relevant regulations but there has to be an EPC in relation to the property, i.e. one actually in existence. Therefore, if you rely on the supposed exemption under the Energy Performance of Building Regulations to say that you are exempt from having an EPC, you are also in effect saying that you are exempt from compliance with the minimum energy performance requirements if they would otherwise apply. If you actually have an EPC you then have to consider whether, notwithstanding, the exemption applies should you have an F or G rating. The penalty for not having an EPC is much lower than the one for failing to comply with the minimum standards after all! It is better not to have an EPC.
Even if you have an EPC for whatever reason, you are also exempt from having to comply with these minimum standards if you were not required to have one in the first place (notwithstanding that you actually have one). This, however, unfortunately brings us back to the ever repeated caveat regarding unacceptable alterations for the character/appearance of the building. In this context, however, the exemption does make sense. Works that do not damage the character/appearance have to be carried out to meet minimum energy efficiency requirements, but those that would adversely affect the building do not. However, this brings us back to the same point. This simply does not make sense when it comes to categorising or describing a building although it does make sense when categorising a particular requirement e.g. external solid wall insulation.
Unfortunately, however, the wording of the exemption from the minimum standards relating to protected/listed buildings is phrased in terms of the need or otherwise for an EPC rather than the consequences of the works themselves.
No need to link the exemption to EPC exemptions
The confusing wording in the Directive itself around the exemptions for listed building is far from helpful and is the start of the problem. Coupling the minimum energy efficiency requirements under the 2011 Act with the EPC exemption is at the heart of the problem. There is no need for this link. The Energy Act is not implementing EU requirements. Whatever may be the issue around the EPC exemption which is potentially an EU issue, the regulations which implement the minimum standards could simply contain a standalone unqualified exemption for listed buildings which would solve the problem. Whether the UK Government would agree is another matter as they may make a policy decision that they want to see substandard listed buildings comply to the extent that the work does not adversely affect the character or appearance of the building.
Clarity can only be achieved by amending the regulations but this can be done without involving the EU so far as minimum standards are concerned.
The implications for Section 21
A further concern for landlords renting out properties under an assured shorthold tenancy is that from the 1st October 2015 certain additional requirements were introduced which have to be complied with if you wanted to serve a valid Section 21 notice to evict a tenant. These include providing a copy of the EPC. This requirement does not affect tenancies which started before the 1st October 2015. The regulations would, however, only apply if an EPC was legally required for a listed building. Exactly the same uncertainty, however, applies. If an EPC is required for a listed building and one has not been provided, then a Section 21 notice served by the landlord would be ineffective. The landlord can put the situation right by providing an EPC to the tenant. However, the same issue of uncertainty around the scope of the exemption clearly applies in this situation.
Regrettably, we simply do not know the answer to whether or not an EPC is required for a listed building; nor whether landlords who have rented out listed buildings will have to comply with Minimum Energy Efficiency Standards (subject to any other available exemption, e.g. limiting the amount they have to spend); or whether you need an EPC for a listed building in order to be able to rely on regaining possession under Section 21 of the Housing Act 1988. What is clear is that if you have no EPC then you do not have to comply with Minimum Energy Efficiency Standards from 2018 onwards. You could be liable for a penalty for not having an EPC and equally you might not be able to get possession back relying on Section 21. This is a wholly unsatisfactory state of affairs which needs to be addressed by the Government.