Is an EPC Required for My HMO?
The question of whether an Energy Performance Certificate (EPC) is necessary for my House in Multiple Occupation (HMO) has become increasingly important. As the temperatures drop, I find myself contemplating the need to bring rented properties up to a C rating. Whenever new regulations are mentioned, I begin planning ahead, considering that 2025 will soon be upon us. Currently, I am investing my time in exploring various options, both online and offline, and seeking advice from knowledgeable individuals regarding potential improvements.
Within my property portfolio, I have identified some buildings that may pose challenges. Sharing what I have learned about these properties is beneficial:
1. Victorian Terraced HMO
2. 1960’s All-electric flat
3. Modern terraced house with a mezzanine floor and no loft
Surprisingly, all of these properties currently have a D rating, and I had initially believed that I had future-proofed them at this level. However, it appears that this may not be the case anymore.
Let’s begin by addressing the question of whether an EPC is required for my HMO. There is considerable controversy surrounding this issue, but the legislation and regulations provide some clarity:
“An EPC is only required for a habitable unit if it is self-contained.”
Case Study 1: A house or flat is rented by multiple tenants who have exclusive use of their bedrooms but share a kitchen and bathroom. In this scenario, each tenant has a separate contract with the landlord for their respective areas of access, rather than for the entire dwelling. As a result, an EPC is not required every time a tenant moves.
Case Study 2: A group of friends rents a property, and there is a single contract between the landlord and the group, covering the rental of the entire dwelling. In this case, an EPC is required for the entire property.
According to the most recent guidance, the “Minimum Level of Energy Efficiency” standard (EPC band E) applies to privately rented domestic properties. Landlords must comply with this standard, and as of April 1, 2020, they can no longer let or continue to let properties covered by the MEES Regulations if the EPC rating is below E, unless a valid exemption is in place.
What constitutes a valid exemption?
Guidelines for PRS exemptions and evidence requirements for the Exemptions Register
Updated as of March 22, 2019
The PRS Exemptions Register applies to properties that meet the following criteria:
1. Properties that are legally required to have an Energy Performance Certificate (EPC).
2. Properties that are let under a relevant tenancy type.
3. Properties that cannot be improved to achieve the minimum EPC band E standard due to specific reasons mentioned below.
The following exemptions are available to private landlords:
1. ‘High Cost’ Exemption:
The requirement to achieve an EPC rating of E does not apply if the cost of the cheapest recommended improvement exceeds £3,500 (including VAT).
Note: This threshold is projected to increase to £10,000 when the minimum requirement is updated.
2. ‘All Improvements Made’ Exemption:
Applies when all relevant energy efficiency improvements for the property have been implemented or if there are no improvements that can be made, yet the property remains below the required standard (Regulation 25).
This exemption applies to both domestic and non-domestic properties.
3. ‘Wall Insulation’ Exemption:
Applies to situations where certain wall insulation systems are deemed unsuitable for a property, even if they have been recommended and meet the funding requirements. Cavity wall insulation, external wall insulation systems, and internal wall insulation systems may not be suitable in these cases.
This exemption is applicable to both domestic
and non-domestic properties. Please refer to the relevant guidance documents for funding requirements specific to each property type.
4. ‘Consent’ Exemption:
Exemption granted when third-party consent is required but cannot be obtained (Regulation 31(1) and Regulation 36(2)).
This exemption applies to both domestic and non-domestic properties.
5. ‘Devaluation’ Exemption:
Exemption granted when implementing energy efficiency measures would cause a significant devaluation of the property (Regulation 32(1) and Regulation 36(2)).
This exemption applies to both domestic and non-domestic properties.
6. ‘New Landlord’ Exemption:
Temporary exemption granted due to recently becoming a landlord (Regulation 33(1) and Regulation 36(2)).
This exemption applies to both domestic and non-domestic properties.
If we determine that an Energy Performance Certificate (EPC) is not required for a House in Multiple Occupation (HMO), several issues arise:
1. Can we legally serve a Section 21 notice to a tenant who has not been provided with an EPC? The EPC is one of the qualifying documents for serving a valid Section 21 notice.
The most recent case law, dated June of this year, applies only to tenancies established before 2015:
“The Court of Appeal reviewed a section 21 notice seeking possession and delivered its judgment on June 23, 2021. The Court of Appeal determined that the section 21 notice was indeed valid, as Regulation 2 of the Regulations does not apply to tenancies granted before October 1, 2015.
Therefore, landlords of properties leased under assured shorthold tenancies granted or renewed prior to October 1, 2015, are not obligated to provide an EPC or comply with the Gas Safety Regulations (Gas Safety (Installation and Use) Regulations 1998) when serving a section 21 notice seeking possession.”
Finally, there is a significant issue concerning the disaggregation of HMOs.
In various regions across the country, the VOA (Valuation Office Agency) is reclassifying HMOs, treating individual rooms as self-contained units with their own Council Tax band and bill, which is charged to the tenants. As more HMOs are upgraded with en-suite facilities, the practice of disaggregation becomes more prevalent, even if there are no food preparation, storage, or cooking facilities. In such cases, an HMO transforms into a building consisting of separate dwellings, necessitating an EPC for each dwelling.
Personally, I believe that all HMOs should require an EPC, taking into account the aforementioned information as well as any additional details you can gather. It is essential to make a decision but also consider the potential consequences of being wrong.
In the case of your HMO properties, it’s important to assess whether an EPC is required for each of them. Based on the information provided, here’s the breakdown:
1. Victorian Terraced HMO:
If the Victorian Terraced HMO consists of separate units where each tenant has exclusive use of their bedroom but shares the kitchen and bathroom facilities, then an EPC may not be required for each individual unit. However, if there is a single contract between the landlord and a group renting the entire property, an EPC for the entire property would be necessary.
2. 1960’s All-electric flat:
For the 1960’s all-electric flat, if it is let as a single unit to a group of friends under a single contract, then an EPC for the entire flat would be required.
3. Modern terraced house with a mezzanine floor and no loft:
In the case of the modern terraced house with a mezzanine floor and no loft, if it is let as a single unit to a group of tenants under a single contract, an EPC for the entire property would be necessary.
Regarding the minimum energy efficiency requirements, as of April 1, 2020, privately rented domestic properties in the UK must have a minimum EPC rating of E. Landlords are prohibited from letting or continuing to let properties with an EPC rating below E, unless a valid exemption applies.
It’s important to note that exemptions are available for landlords who cannot improve their property to reach the minimum EPC rating due to specific circumstances, such as excessive cost, unsuitable wall insulation, lack of necessary consent, significant devaluation, or being a new landlord. Each exemption has specific criteria and evidence requirements, and you should consult the relevant guidance to determine if any exemptions apply to your properties.
Considering the evolving nature of regulations and potential changes, it’s advisable to stay updated and consult with knowledgeable professionals, such as energy assessors or property experts, to ensure compliance with the current requirements for your HMO properties.
Please let me know if there’s anything else I can assist you with.