From October 2008 landlords offering property for rent will be required by law to provide prospective tenants with an Energy Performance Certificate for their property. The certificates ('EPCs') will have to be provided free either when (or before) any written information about the property is provided to prospective tenants or a viewing is conducted. They will not have to be provided if the landlord believes the prospective tenant is unlikely to have sufficient funds to rent the property or is not genuinely interested in renting, or the landlord is unlikely to be prepared to rent the property to the prospective tenant. A new certificate will not be required on each let since, in the case of rental property, EPCs will be valid for 10 years.
The requirement is being introduced to comply with the EU's Energy Performance of Buildings Directive (EPBD) which applies to all property, including rented property. This became law in 2003 and allowed until January 2009 for full implementation so as to provide time for sufficient numbers of energy assessor to be trained. The Directive's requirements have been introduced into English and Welsh law along with the controversial Home Information Pack regulations that require sellers to produce packs providing information about their title, local searched, plus an EPC.
The full requirements are included in the Home Information Pack (No 2) Regulations 2007 and the Energy Performance of Buildings (Certificates and Inspections) (England and Wales) Regulations 2007. In Scotland, the Single Survey, the equivalent to HIPS, also includes an energy report requirement. So far as energy performance is concerned, the regulations require an EPC when a building is constructed, sold or rented out. When included in a HIP related to a property sale, the EPC should be no more than 12 months old when the property is first marketed. In other circumstances EPCs have a 10 year life.
HIP requirements have already come into force so far as three and four bedroom properties are concerned. And EPCs will be required for all new builds from 6 April 2008, and for all rentals as from 1 October 2008. In Scotland EPCs for rental properties will be required by January 2009.
By 2009, all buildings in the UK that are constructed, sold or rented out will have to have an Energy Performance Certificate. In the case of larger public buildings a 'Display Energy Certificate' will have to be on show. There are a number of different permitted assessment methods, their use depending upon the type of building being assessed.
Dwellings will usually be assessed using the 'Reduced Data Standard Assessment Procedure' (RdSAP), an industry agreed standard that allows some data to be inferred. Its use involves inspectors collecting standard information on the type of property and construction, the property dimensions including room sizes, types of windows, room and water heating systems and controls, plus other details such as wall, loft and water tank insulation. Agreed reference coefficients are then applied to arrive at an energy rating. EPCs for dwellings will rate the energy performance of buildings (not the appliances within them) on a scale of 'A' to 'G' ? where 'A' is the most efficient, and 'G' the least. This will be displayed graphically in a similar way as present energy labelling on white goods such as fridges and washing machines. Two ratings will be shown: an overall energy efficiency rating, and an environmental impact rating in terms of carbon dioxide (CO2) emissions - the higher the rating, the less impact on the environment.
The idea is that because EPCs will be prepared using standard methods with standard assumptions, it will be possible to make comparisons of the energy efficiency of buildings. The Government argues that in the case of rental properties, high rating will be more desirable and will impact on the marketability of properties ? and hence ultimately on rent levels. EPCs will always be accompanied by a recommendation report including a list of measures (such as low and zero carbon generating systems) that would improve the energy rating of the building and an indication of the rating that could potentially be reached should these recommendations be implemented.
It suggested each year an estimated 2.5m plus homes will require an EPC. ECPs may only be produced by authorised Domestic Energy Assessors (DEAs) who have been able to demonstrate appropriate qualifications or competence. At least one DEA trainer is claiming, that besides benefiting from flexible working hours, qualified assessors will be able to earn up to £100,000 a year. According to the Government, buildings are responsible for almost 50 per cent of all energy consumed in the UK and over a quarter of CO2 emissions, while forecasts suggest a large proportion of current buildings will still be in use in 2050. An initial survey of EPC results found that on average four bedroom homes were being rated 'E'.
'This could potentially rise to a "C" if consumers undertake measures recommended in the certificates, such as loft and cavity wall insulation', claimed the Government. The top five recommendations given by assessors for improving energy efficiency have been: cavity wall insulation, changing to low energy lighting, putting thermostatic valves on radiators, loft insulation, and double glazing. The Government said the price of an energy performance certificate will be set by the market and it expects the cost to vary according to the size, type and location of the property. However, it is predicting that the cost of a stand alone EPC for an 'average' home is approximately £100. This seems to be borne out by prices currently being quoted by providers.
The Government also suggests that the time taken to perform an energy assessment will be 'about the same time as performing a housing valuation report'. Landlords wishing to make energy saving improvements to their properties either before or after obtaining an EPC are offered some help from the Government. The Landlord's Energy Saving Allowance, originally introduced in April 2004, now covers loft insulation, cavity wall insulation, solid wall insulation, draught proofing, hot water system insulation, and floor insulation. Expenditure on these items would otherwise be treated as capital expenditure ? which means it could not be deducted from rental income to arrive at a taxable item.
However, the LESA allows up to £1,500 per property spend on such items as a straight deduction from rental profits. The allowance is to run until 2015. The 'per property' rule (rather than the former 'per building' restriction means that for a house converted into three flats an allowance of £4500 can be claimed.
However, the allowance is not available for holiday lets or resident landlords.
For further information on energy performance certificates visit Residential Landlord the premier, and complete information website for landlords and property investors with UK buy to let rental property investments.