Energy efficiency regulations in Scotland: warmer homes for private tenants

Energy efficiency is a national infrastructure priority for the Scottish Government, which has a long-term strategy to make Scotland’s buildings “warmer, greener and more efficient”. Already, there are  a number of requirements in place targeted at improving energy efficiency and reducing greenhouse gas emissions in commercial properties, and now it’s the turn of the residential private rented sector.

The proposed new Energy Efficiency (Domestic Private Rented Property) (Scotland) Regulations 2019 will impact on privately rented domestic properties by requiring that homes meet a minimum standard of energy efficiency before they can be let or continue to be let. Eventually, all tenanted properties will need to meet the minimum standards. The Scottish Government is consulting on the approach taken in the proposed regulations until 13 September 2019.

Energy performance of buildings

All buildings need an energy performance certificate (EPC) before they can be let (other than temporary buildings planned to be used for two years or less, small buildings of less than 50m², and certain agricultural buildings). The EPC provides a rating indicating how energy efficient the building is, ranging from A, the most efficient, to G, the least efficient.

The aim of the proposed new regulations is to raise the energy efficiency rating across the whole private rented sector by requiring landlords to carry out improvements that will improve the energy rating of their properties. This will be introduced on a phased basis.

Prohibition on letting a sub-standard domestic rented property

A property will be deemed “sub-standard” if it fails to reach the relevant EPC rating by the relevant date. As set out in the table below, the regulations will provide that privately owned properties that are newly let after 1 April 2020 must have a minimum energy efficiency rating of at least Band E and, by 31 March 2022, all other rented properties must achieve at least Band E. From 1 April 2022, the minimum band applicable to new lettings will be D, with all let property to achieve that rating by 31 March 2025.

Although not part of the current proposed regulations, the Scottish Government’s aspiration is for all privately rented homes to achieve a Band C rating by 2030, where it is technically feasible and cost effective to do so.

What properties are affected?

These proposed new regulations affect domestic private rented properties. A property will qualify as a domestic private rented property if it is one to which the “repairing standard” applies. Broadly, that means any tenancy of a house let for human habitation (other than a temporary building with a planned time of use of two years or less).

The repairing standard is a set of minimum requirements for residential occupation. These include that the home is wind and watertight, in a reasonable state of repair, and with internal drains, pipes and other installations, fittings, fixtures and appliances also being in a reasonable state of repair and in proper working order, plus satisfactory provision for detection of fires and hazardous levels of carbon monoxide.

Properties that are not affected by these regulations include public sector tenancies and social housing (which are subject to their own energy efficiency regulations), holiday lets, and (for the time being) crofts, agricultural tenancies, and small holdings. Agricultural, crofting and small holding tenancies will, however, require to meet the repairing standard from March 2027, and will come within the ambit of these regulations at that time. Holiday lets are lets of less than 31 days for the purpose of a holiday.

Relevant energy efficiency improvements

Landlords will be expected to carry out improvements to sub-standard properties as recommended in either an EPC, green deal report, or a report from a surveyor, provided it is an improvement that is on the list of energy efficiency improvements in a schedule attached to the regulations. This list includes insulation measures, such as loft or cavity wall insulation; ventilation measures such as draught proofing; heating measures, including replacing an existing boiler; fitting space and water heating controls such as programmers and thermostats; and the provision of solar hot water or photovoltaic panels.

Exemptions from compliance

There are several situations in which the minimum standard will not apply. If an exemption applies, the landlord must register for the exemption with the local authority’s “PRS Exemptions Register”, supported by evidence of how the exemption applies. Most exemptions will apply for five years, after which the landlord must re-apply if they want the exemption to continue (and would need to provide evidence that the exempted circumstances continue to apply).

Relevant energy efficiency improvements undertaken

This exemption applies where the landlord has carried out all relevant energy efficiency improvements that they can make to the property – or there are none recommended in either a green deal report, EPC or surveyor’s report, but the property still doesn’t meet the minimum standard. To claim this exemption, written confirmation must be obtained from an architect, engineer, building surveyor, or independent installer, confirming where applicable that all possible measures have been undertaken, or that any measures that could be taken to improve the energy efficiency of the property should not be undertaken due to the potentially negative effect they would have on the fabric or structure of the building.

Consent exemption

Where the current tenant, or a third party such as a heritable creditor or another owner or occupier in the same building, has refused to allow works to be carried out, the landlord can request an exemption for five years or, in the case of tenant’s refusal, until that tenancy changes.

Where recommended works cannot be carried out because the property is a listed building, or located in a conservation area, other alternative measures should be identified. If work cannot be carried out due to the presence of a protected species (e.g. bats) in the property, exemption from the requirement will be monitored so that if the species leaves, improvements must then be undertaken.

Cost cap exemption

There is to be an upper cap on the cost of any required improvements of £5,000. If the cost of works required is in excess of this amount, the landlord does not need to carry them out, but they must make any other relevant energy efficiency improvements up to the amount of the cost cap. The cap applies to each incremental improvement in the energy efficiency rating, i.e. a cap of £5,000 to reach band E, and a further £5,000 cap to achieve band D.

Temporary exemption

A temporary exemption from reaching the required rating will apply for six months after a person has acquired the property, for example where a person buys a property with a sitting tenant. This is more of a postponement than an exemption, and will allow a new landlord time to organise and implement energy efficiency measures.

Enforcement and compliance

Local authorities will be the enforcement authorities under these regulations.

PRS Exemptions Register

Local authorities must set up and maintain a “PRS Exemptions Register” for the private rented sector (PRS) properties in their area. It will contain information on (i) any exempt sub-standard properties and (ii) compliance notices that have been served on landlords. Scottish Ministers and enforcement authorities will have full access to the register, but it appears that there is to be free access to basic information about properties, the exemption claimed for them, and a copy of the EPC for the property, as well as the name of the landlord, if it is not an individual.

Local authorities must also publish details of financial penalties imposed, and of other breaches of the regulations; also with the name of the landlord, if it is not an individual, in cases in which a “publication penalty” is also imposed.

Compliance Notice

The local authority may serve a compliance notice on a landlord where they appear to be letting sub-standard property (and have not applied for an exemption). The notice will request any information it considers necessary, such as the property’s EPC or tenancy agreement. The local authority can also require the landlord to register these items on the PRS Exemptions Register.

Penalty Notice

A penalty notice can be served on a landlord in any case in which the local authority is satisfied that the landlord:

• is (or has been at any time in the previous 18 months) letting a sub-standard property (without obtaining an exemption); or
• has failed to comply with a compliance notice.

The penalty notice can impose a financial penalty, a publication penalty or both.

The penalty notice must specify action that must be taken by the landlord to remedy the breach (giving not less than 28 days to do so), and state the amount of any penalty. Where the landlord does not take any action, the enforcement authority can issue a further penalty notice.

Penalties

A publication penalty will mean publication in the PRS Exemptions Register of details of the landlord, the property, and the breach in respect of which the penalty notice has been issued, including the amount of any financial penalty. The details will remain in the register for at least 12 months.

In all situations, a publication penalty can be imposed alongside a financial penalty.

If more than one financial penalty is imposed, the total cannot exceed £5,000. However, this will be per property, per breach. Persistent offenders could accordingly be subject to multiple fines. Failure to meet the minimum standards, or pay a penalty, could result in the landlord being removed from the Landlord Register.

A landlord has the right to seek a review of a penalty notice, and make representations, which, if accepted, can mean the penalty notice is withdrawn, reduced, or the period of time allowed for payment extended. If, after this review, the landlord is still not happy, they have a right of appeal to the Sheriff Court.

Taking steps now

With less than a year to go before the introduction of these regulations, private landlords whose property is sub-standard should be thinking about taking steps now to improve the energy efficiency of their property, particularly if there is a prospect of a new letting from 1 April 2020. Costs incurred from 1 October this year can be taken into account in the cost cap.

Where the property already has an EPC, it will contain recommendations for action that the landlord can take to improve the energy efficiency, and rating, of the property. Those recommendations should be their first port of call, and often cost-effective measures can be implemented that have a beneficial effect on the energy performance of a property.

There are also a number of government incentives available, in addition to financial support in the form of interest-free loans and free, impartial advice available to private landlords and their tenants and guidance on the loans and grants available. For further details, visit Home Energy Scotland at www.energysavingtrust.org.uk/scotland/home-energy-scotland

With additional reporting by Jessica Maskrey