Stroma’s response to Domestic MEES amendment

In December 2017, the Department for Business, Energy & Industrial Strategy (BEIS) published a consultation on amending the Domestic Minimum Energy Efficiency Standard (MEES) Regulations.

The regulations, which take effect in less than a weeks’ time, set a required minimum level of energy efficiency for all privately rented properties. Landlords with F or G EPC rated properties will no longer be able to let their properties, unless they make energy efficiency improvements or if an exemption applies.


To protect landlords from excessive costs of upgrading their properties, the Government proposed to amend the regulations to introduce a capped financial contribution. The cap would set a maximum limit on the amount a landlord would have to pay to upgrade their property.

The consultation aimed to seek industry views on the proposed cost cap, including a range of alternative cap options.

Andrew Parkin, Director of Energy Certification, has published Stroma’s response to the domestic MEES consultation:

Question 1. Do you agree with the policy proposal under consideration here to introduce a landlord contribution element where funding is unavailable to ensure improvements to Band F and G properties can be delivered (unless a valid exemption applies)? This would be subject to a cost cap. If you do not agree, what are your objections, and how do you recommend the energy efficiency minimum standard should be achieved, given the current funding climate?

I agree with this proposal

Please provide reasons and evidence where available to support your views.

The current regulations are worded to easily allow many sub-standard properties to be exempt from the requirement to achieve an E rating. This is because the funding options available are fairly limited. ECO funding is limited to tenants who are eligible, or areas where funding is available. Therefore, this funding stream is not universally helpful.  Green Deal and the replacement of this mechanism is not set up for mass funding as it currently stands, which means that funding is not universally available for the able to pay market, and even if it is, there is a limited number of measures that can be funded. Local authority funded measures are also limited in their availability and measure coverage.

Imposing a cost cap would ensure funds from the person responsible for the property and for the wellbeing of the tenant are available to improve the property. Even if the amount cannot achieve the minimum standard, the cap should be spent as practicably possible to improve the property to as high a standard as possible – i.e. the best possible energy rating is achieved by installing the best package of measures from the EPC.

Question 2a. Do you agree that a cost cap for improving sub-standard domestic private rented property should be set at £2,500? If you do not agree, what would be the most appropriate level to set the threshold?

I agree with this proposal

Please provide reasons and evidence where available to support your views.

It is important to set a minimum fee so that each party involved (landlord, local authority etc.) understands the exemptions process and what they need to do.

A cap of £2500 would allow several low-cost key measures to be installed without imposing a potentially prohibitive requirement on landlords. However, this figure may mean that the landlord only invests in what will achieve the minimum standard set for 2018, and not plan for the future. A cap of £5000 would allow a larger package of measures to be invested in now and benefit from the savings that can be derived from a packaged install.

In Scotland, the government have proposed that a cap of £2,500 per rating band should exist. This means that worst performing properties should have more money invested in them, and that the further from the standard the property is, the more investment is needed. Stroma would like this to be considered as well as an option. It wouldn’t be a blanket requirement for all properties to have a cap of £5,000, as a greater proportion of properties would only need a single band increase cost (i.e. £2,500).

Certainly, the cap needs to be sufficiently high enough to allow for a package of measures to be installed or for a single, higher cost measure to be installed if that allows for the minimum standard to be met (i.e. a replacement boiler and required controls).

It is also worth considering what needs to happen for all properties to then achieve even higher standards set by the Clean Growth Strategy for 2030/2035. Any policy should look at how a C rating can be achieved by the majority of properties and what needs to happen should properties be exempt. Is it reasonable to have an assessment or exemption application be made every 5 years?

Stroma would like to highlight that there is nothing to be gained by allowing many properties to be repeatedly exempt from the regulations. We feel it is better to focus the MEES regulations on how a landlord can meet the minimum standard and not how to register an exemption.

Question 2b. Do you agree that a cost cap for improving sub-standard domestic private rented property should be set inclusive of VAT?

I do agree with this proposal

Please provide reasons and evidence where available to support your views

By including VAT in the total, the impact of the cost cap would be reduced accordingly. Stroma feels that the cap should be exclusive of VAT.

Stroma would like the government to consider other opportunities to further incentivise future uptake for energy efficiency retro fit measures, by reducing the tax burden on these products, in the same way that energy costs are capped at 5% VAT.

Question 3. Do you agree that a cost cap should not take account of spending on energy efficiency improvements incurred prior to 1 October 2017? If you do not agree, what would be the most appropriate way of taking account of previous spending on measures which have failed to raise a property above EPC F or G?

I agree with this proposal

Please provide reasons and evidence where available to support your views.

We need a cut-off date somewhere and 1st October seems a suitable date, as it was the date that the exemptions registration process began. If the cut-off date were pushed further back, for example April 2016, when the MEES policy allowed tenants to enquire about improvements to properties, then we would still have the same situation where improvements were made just prior to a date.

Question 4. Do you agree with the proposal that where a landlord contributes to the improvement, the cost cap threshold should be inclusive of any funding which can be obtained through a ‘no cost’ finance plan (including a Green Deal finance plan), Supplier Obligation Funding (for example, ECO: Help to Heat or a successor scheme), or energy efficiency grant funding from a Local Authority or other third parties?

I do agree with the proposal

Please provide reasons and evidence where available to support your views.

Whichever cap is introduced, this should be in addition to the value of any other third-party funding the landlord intends to use, to ensure that the landlord is obliged to spend, as a minimum, the value of the cap. This would allow for the best possible impact of the MEES regulations from the start.

Question 5. Do you agree that it is not necessary to place a regulatory duty on energy suppliers, or their agents, to provide landlords with cost information relating to the value of energy efficiency improvements made to the landlord’s property through a supplier obligation?

I agree with this proposal

Please provide reasons and evidence where available to support your views.

Stroma doesn’t feel that there is need for a regulatory duty to be placed on suppliers.

Question 6. Where a landlord is intending to register a ‘high cost’ exemption, should the landlord be required to provide three quotes for the cost of purchasing and installing the measures, in line with the non-domestic minimum standards?

Yes

Please provide reasons and evidence where available to support your views.

Obtaining three quotes is standard practice to show evidence that the install costs quoted are truly representative. This practice was used in green deal and is a best practice approach for when making other property upgrades.

It is also worth looking at who would pay for these quotes, as the installers will not be happy to provide free quotes for exemptions. And if they are providing quotes for exemptions, could this not introduce a scenario where ‘quotes for hire’ happen – essentially tailored quotes to ensure a ‘high cost’ exemption is achieved.

Question 7. Do you agree with the proposal to limit the validity of any ‘no cost to the landlord’ exemptions (under Regulation 25(1)(b)) registered between October 2017 and the point at which a capped landlord contribution amendment comes into force? If you do not agree, what are your objections and how do you recommend that the minimum standard regulations be amended to ensure the energy efficiency improvements are delivered to such properties which might otherwise be left unimproved once the amended regulations came into force?

I agree with this proposal

Please provide reasons and evidence where available to support your views.

The proposal allows time for landlords to reassess any existing exemption and take action as long as the proposed timescales are met.

 

Question 8. Do you have views on whether the consent exemption under Regulation 31(1)(a)(ii) should be removed from the minimum standard regulations or retained?

Please provide your views and support these with reasons and evidence where available.

The consent exemption should be removed from the MEES regulations.

From April 2018, a landlord must provide a property that achieves the minimum rating when renting the property out to a new tenant, therefore the consent exemption will not apply.

From 2020, the minimum standard will apply to all properties in the scope of MEES and therefore the consent exemption could come into play after this date.

By removing this exemption now, it avoids having to retrospectively previously lodged exemptions on the register.

Question 9. Do you have any comments on the policy proposals not raised under any of the above questions?

Please provide your views and support these with reasons and evidence where available.

Stroma sits on the PEPA executive board. Stroma and PEPA are concerned that the MEES regulations could lead to pressures on DEAs to falsify EPCs to show a Band E or above. Given this, we have worked to offer the government a smart audit process, which is designed to find potentially fraudulent EPCs. 

Stroma and PEPA would like to see a scheme which would allow all stakeholders to work together to alert or ‘whistle blow’ any party involved in the production of fraudulent EPCs or exemptions, or where a stakeholder has put pressure on another to commit fraud.

Question 10a. Do you have any evidence or comments regarding the consultation impact assessment (including views on any of the assumptions we have made to support our analysis), which could inform the final stage impact assessment?

Please provide your views and support these with reasons and evidence where available.

The current EPBD regulations do have an impact on MEES. There should be a link between the EPC register and the exemption register so that exemptions do not remain after an EPC is cancelled which will allow local authorities to better enforce the regulations.

Additionally, Stroma and other schemes are required to audit a percentage of all lodged EPCs. Where the EPC is found to be incorrect, the erroneous EPC must be replaced on the register. BEIS needs to consider the implications of this, especially if the EPC then falls below the minimum standard or vice versa.

Question 10b. Do you have any evidence or information on the potential for these proposals to impact on the PRS market, including any potential for landlords who are required to act by the minimum standard regulations to pass through costs to tenants after making improvements to their properties?

Whilst Stroma has no evidence in this area, we are seeing anecdotal evidence that properties that have been upgraded and achieve better EPC ratings, are worth more.

Lenders are less willing to lend on properties that are substandard as there is a risk that these properties will not be rent-able until brought up to standard.

Re-mortgages are also likely to see the same risk assessed approach. For buy to let mortgages, this may even result in a lender refusing a mortgage application., which could impact on Landlords with substandard properties.

It is also worth noting that the above may apply to properties currently above the minimum standard but may be affected by higher standard in the future.

If this is the case Stroma expects landlords to be incentivised to improve the efficiency of their existing housing stock and do due diligence on any prospective purchases to ensure they are purchasing a property that meets or exceeds any standard in the future.

We see this is a very positive sign that landlords will commit to keeping their properties above the minimum standard and not risk their investment.

Whilst landlords may wish to recoup the cost of such improvements, if the rental fee for the property is above others in the local area, the landlord is likely to find it much harder to rent the property out.

A more efficient and cheaper to run property may be easier to rent out due to lower running costs, so this may counteract this to some extent, and a landlord may wish to use this as a marketing point.

Question 10c. Can you provide any evidence on the likely costs associated with the compilation of evidence in advance of registering an exemption on the PRS Exemptions Register?

Please provide your views.

The following are examples of suitable evidence that could be used for registering an exemption. These may be used individually, or in isolation, depending on the circumstances;

  • Lodged EPC
  • Green Deal Advice Report (EPC + OA)
  • Chartered surveyors report
  • Quotes for high cost exemptions (as noted previously)

Stroma cannot give any firm figures on fees. However, we would like BEIS to focus on how to get landlords to comply by removing as many barriers to improving the efficiency of a property, but reducing the ease that landlords can obtain exemptions.

If properties are allowed to remain on the exemptions register indefinitely (via rolling exemptions), then the gap between poorly performing properties and properties that have been upgraded to the minimum standards and new properties will widen further as time goes on.

If you do have any questions on the consultation, please contact Stroma Certification on 01977 665 420 (Ext. 614).





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