Real estate focus UK

Introduction

A round-up of some key legal developments in England and Wales for the real estate sector.

In this edition we take a look at new obligations and duties for residential landlords, the demise of one set of reporting requirements for large businesses and the introduction of another.

MEES: increased costs for residential landlords

Minimum energy efficiency standards (MEES) in force since April 1, 2018 provide that a landlord cannot grant a new – or renew an existing – tenancy of a substandard residential property until it has carried out energy efficiency improvements to bring it to the required standard. A property is substandard if it does not have an Energy Efficiency Certificate (EPC) rating of E or higher.

There are several exclusions (such as lettings by registered social landlords) and exemptions. One exemption has been that energy efficiency improvements have only been required if they are at no cost to the landlord, for example because of the availability of government or local authority funding. This changed on April 1, 2019.

The cumbersomely named Energy Efficiency (Private Rented Property) (England and Wales) (Amendment) Regulations 2019:

• Remove the 'no cost to the landlord' exemption and bring any such exemptions already claimed to an end on April 1, 2020
• Replace the 'no cost' rule with a landlord's financial contribution capped at £3500 (inclusive of VAT) per property, with any available third party funding and any investment in energy efficiency made since October 2017 to be counted within the cap
• Establish a new high cost exemption where a substandard property cannot be improved to E for £3500 or less, with the landlord required to produce proof in the form of three installer quotes
• Remove the exemption that has been available if a tenant withholds consent to a Green Deal financial plan

Landlords with residential tenancies already in place cannot be complacent: from April 1, 2020 they will not be able to continue to let a substandard property. Given that this is less than a year away, now is the time for landlords to check if their residential letting portfolios contain sub-standard properties – and to put their house in order if they do.

CRC – going, going, but not quite gone

As previously reported (see our August 2018 Focus), the Carbon Reduction Commitment (CRC) Energy Efficiency Scheme (the Scheme) came to a premature end on March 31, 2019.

This mandatory emissions trading scheme for large businesses and public sector organisations was intended to reduce energy consumption and required energy use to be reported annually. But it was seen as overly complex and burdensome. Three cheers, then, on its demise – or perhaps two and a half as there are some continuing obligations.

While April 1, 2018-March 31, 2019 is the final CRC compliance year, existing obligations under previous compliance years will continue to apply and some requirements continue until the complete closure of the Scheme on March 31, 2025.

Key dates for Scheme participants include:

• July 31, 2019 – deadline for reporting emissions for the final (2018/2019) CRC compliance year
• Between June 1 and July 31, 2019 – order any allowances for emissions needed
• Pay for those allowances between September 2 and 19, 2019
• October 31, 2019 – deadline for the surrender of allowances
• Continue to update contact details at the CRC registry until March 31, 2022 and
• Maintain evidence packs until March 31, 2025: CRC regulators will continue to conduct compliance audits (and take enforcement action where necessary) until then.

For many businesses, participation in the CRC Scheme has been replaced by a requirement to report energy consumption and energy efficiency actions under a new Streamlined Energy and Carbon Reporting (SECR) scheme. Read on for more details ...

For further information please contact Head of Safety and Environment Caroline May or Of Counsel Lucy Bruce Jones.

New Energy and Carbon Reporting requirements now in force

The Streamlined Energy and Carbon Reporting (SECR) framework was introduced on April 1, 2019 and applies to financial years beginning on or after that date.

SECR simplifies existing energy and carbon reporting policies and reduces the administrative burden imposed on companies, replacing the more cumbersome reporting requirements of the Carbon Reduction Commitment (CRC) Energy Efficiency Scheme.

SECR also supplements the Energy Savings Opportunity Scheme and other obligations already in place for UK quoted companies to report their greenhouse gas emissions. It forms part of the government’s goal to improve energy efficiency by at least 20 per cent by 2030.

The organisations subject to the SECR regime are:

• UK registered large unquoted companies meeting certain criteria
• Quoted companies

In both cases the required information must be included in annual Directors’ Reports.

• Large Limited Liability Partnerships (LLPs). LLPs must set out the required information in an annual Energy and Carbon Report.

There are several exemptions, including an exemption for organisations where energy use is very low.

While non-UK registered companies do not fall within the SECR regime, any UK incorporated subsidiaries will need to comply.

As to next steps, organisations should review whether they fall under the SECR framework and, if they do, whether any of the exemptions apply.

For further detail on SECR, please see our briefing on the topic or contact Head of Safety and Environment Caroline May or Of Counsel Lucy Bruce Jones.

Fitness for human habitation: implied obligations on landlords

The Homes (Fitness for Human Habitation) Act 2018 implies a covenant into tenancy agreements of certain dwellings in England requiring the landlord to ensure that the premises are fit for human habitation at the beginning of the tenancy and will remain so throughout the term.

This requirement is not new: there was a similar obligation in the Landlord and Tenant Act 1985 but that was of no practical value as it only applied where annual rent levels are very low (£80 or less in London). It was also only enforceable via a local authority enforcement notice.

The new implied covenant:

• Applies, generally speaking, to residential tenancies granted for a term of less than seven years (and also to certain longer term tenancies in the social housing sector)
• Is directly enforceable by the tenant, who has the right to take action in the courts for breach of contract and
• Extends the factors to be taken into account when evaluating unfitness for human habitation to include prescribed hazards such as damp and mould growth, excess cold, excess heat and noise (there are 29 such hazards).

The Act came into force on March 20, 2019 and applies to tenancies granted on or after that date. This includes periodic tenancies that come into existence on or after March 20 on the expiry of a fixed term tenancy granted before then. There is a retrospective element as it will also apply to existing tenancies from March 20, 2020.

Landlords should note that any attempt in a tenancy agreement to exclude the implied covenant will be void and also bear in mind that it applies to common parts as well as to the interior of a dwelling.