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Do I need an EPC for my HMO? THAT HAS BECOME A VERY IMPORTANT QUESTION.
The colder it becomes the more I think about the need to get rented properties up to a C. I always begin planning when new regulations are mentioned and 2025 will soon come around. In the meantime, investigating the options is time-consuming but worthwhile and part of that is talking to people who have knowledge about different aspects of the potential improvements which I am doing on and off-line at the moment.
In my portfolio, I have some buildings which might be problematic, and this is useful when sharing what I learn:
- Victorian Terraced HMO
- 1960’s All-electric flat
- Modern terraced house with mezzanine floor and no loft
All of these properties are D and I honestly thought that I had future-proofed them at this level, now apparently not.
Let’s begin with my HMO by asking the question Do I need an EPC?
There is much controversy around when an HMO needs an EPC but this is what the legislation and regulations tell us:
“An EPC is only required for a habitable unit if it is self-contained”.
Case Study 1 A house or flat is rented by a number of tenants who have exclusive use of their bedrooms but share a kitchen and bathroom. In this case, each tenant has a contract with the landlord for the parts they have access to, but not for a whole dwelling. An EPC is therefore not required each time a tenant moves
Case Study 2 A group of friends rent a property and there is a single contract between the landlord and the group as the contract is for the rental of a whole dwelling. An EPC is required for the whole dwelling.
Most recent Guidance
Domestic private rented property: minimum energy efficiency standard – landlord guidance
“Guidance for landlords of domestic private rented property on how to comply with the 2018 ‘Minimum Level of Energy Efficiency’ standard (EPC band E).
Since 1 April 2020, landlords can no longer let or continue to let properties covered by the MEES Regulations if they have an EPC rating below E unless they have a valid exemption in place.
What is a valid Exemption?
Guidance on PRS exemptions and Exemptions Register evidence requirements
Updated 22 March 2019
The PRS Exemptions Register is for properties which:
are legally required to have an EPC
are let on a relevant tenancy type
cannot be improved to meet the minimum standard of EPC band E for one of the reasons set out below
These are the exemptions available to private landlords:
‘High cost’ Exemption
The prohibition on letting property below an EPC rating of E does not apply if the cost of making even the cheapest recommended improvement would exceed £3,500 (inc. VAT).
Note this is forecast to increase to £10,000 when the minimum requirement is updated
‘All Improvements Made’ Exemption
Where all the “relevant energy efficiency improvements” for the property have been made (or there are none that can be made) and the property remains sub-standard (Regulation 25).
Applies to domestic and non-domestic property.
‘Wall Insulation’ Exemption
Wall insulation exemption (Regulation 24(2)).
Applies to domestic and non-domestic property.
Regulation 24(2) – The Regulations acknowledge that certain wall insulation systems may not be suitable in certain situations, even where they have been recommended for a property, and where they meet the funding requirements (funding requirements are different for domestic and non-domestic properties – please see the relevant guidance documents for more information).
Therefore there is a special provision for circumstances in which cavity wall insulation, external wall insulation systems, and internal wall insulation systems should not be installed.
‘Consent’ Exemption
Third-party consent exemption (Regulation 31(1) and Regulation 36(2)).
Applies to domestic and non-domestic property.
‘Devaluation’ Exemption
Property devaluation exemption (Regulation 32(1) and Regulation 36 (2)).
Applies to domestic and non-domestic property.
‘New Landlord’ Exemption
Temporary exemption due to recently becoming a landlord (Regulation 33(1) & Regulation 36 (2)).
Applies to domestic and non-domestic property.
Full details of these exemptions and evidence needed to make a claim and enter the Register is here:
Guidance on PRS exemptions and Exemptions Register evidence requirements – GOV.UK (www.gov.uk)
You will note that there is no mention here of exemption on the basis of HMO or All-inclusive rents.
There are a number of issues that come to mind if we decide that we don’t need an EPC for an HMO:
Can we serve a valid Section 21 on a tenant who has not been given an EPC? – THIS IS ONE OF THE QUALIFYING DOCUMENTS FOR SERVICE OF A VALID SECTION 21.
This is the most recent case law I can find, June this year, but it only applies to pre-2015 tenancies:
“The Court of Appeal considered the section 21 notice seeking possession and handed down its judgment on 23 June 2021. The Court of Appeal concluded that the section 21 notice was in fact valid as Regulation 2 of the Regulations does not apply to tenancies that have been granted before 1 October 2015.
Therefore, landlords of properties let under assured shorthold tenancies that were granted or renewed prior to 1 October 2015, when serving a section 21 notice seeking possession, are not required to serve an EPC or comply with the Gas Safety Regulations (Gas Safety (Installation and Use) Regulations 1998).”
EPC not required when serving s21 notice pre-2015 | Weightmans
Are we any the wiser on serving a valid Section 21 to an HMO tenant where no EPC was provided?
From the Form N5B – which we must complete in order to apply to the court for Possession:
16. Was a valid energy performance certificate given, free of charge, to the Defendant?
Yes, the Defendant was given the certificate on Day Month Year
You must attach a copy of the energy performance certificate and mark it ‘F’.
No
There is no room to explain if you tick NO.
The second issue is How can we sell an HMO without a valid EPC? – The answer is we can’t. All domestic properties must have an EPC to be sold. If you are buying a property that is on the register, be aware of this notice from the EPC Register linked above:
Please note: any exemptions from the prohibition on letting F or G rated property which are registered on the Private Rented Sector (PRS) Exemptions Register may not pass over to a new owner or landlord of a property upon sale, or other transfer. If a let property is sold or otherwise transferred with an exemption registered, the exemption will cease to be effective and the new owner will need to either improve the property to the minimum standard at that point, or register an exemption where one applies, if they intend to continue to let the property.
Finally, there is the big problem of disaggregation of HMOs
In many parts of the country, the VOA are re-banding HMO making rooms a self-contained unit with their own Council Tax band and bill which is charged to tenants. As more and more HMOs are upgraded with en-suites the practice of desegregation increases; even where there are no food preparations, storage or cooking facilities. If this happens an HMO becomes a building of separate dwelling places and therefore must have an EPC and potentially one for each dwelling.
I am a belt and bracers person and for me, all HMOs do need an EPC – given all the information above and anything else you can find out, you need to make a decision and then consider the possibility that you are wrong – what might the consequences be?
1960’ flats
I love them. Huge rooms, light and air from huge windows, simple builds and they look great when marketing furnished or unfurnished because of the possibilities tenants can see in all that space. Unfortunately, some of mine are all-electric – I don’t love this, at least I didn’t until I came across some interesting information when researching what I should do to improve the EPCs from D to C.
I found an interesting article written by Tom Entwisle, founder of Landlordzone who says that the EPC assessment system is unfit for purpose and may end up costing landlords many thousands more than we need to spend but I was particularly interested in this quote from that article:
“David Simms, a small-scale developer and landlord in London told The Daily Telegraph that when he redeveloped a block of flats in Clapham, he paid out £10,000 to install energy-efficiency improvements, including insulating the building.
“The EPC rating went from a B to a borderline D because we put in electrical heating. It was like being kicked in the face,” he said.
The solution, according to the EPC assessor, was to revert the heating system back to overnight storage heaters. This was despite the fact that this would increase the total energy usage.”
The owners of a flat on the development where I let were given ECO funding and all, but two of the storage heaters were removed and replaced by electric heaters which were claimed to be cheaper to run. Unfortunately, this has not proven to be the case. I am now going to hold fire on replacing storage heaters, mine were all replaced in the last 6 years and are the most efficient I could find.
Something that did work well for my tenants, and which I have done in all of my all-electric flats, is to remove the hot water tank which was heated by an emersion heater. A couple of my tenants wanted to hang on to their baths, but when I explained the reduction they would see in their electricity bills they agreed. I fitted an in-line water heater, which is tiny and left a whole extra cupboard where the boiler and feeder tank had been. The heater only uses electricity when the hot taps are turned on and the cost is minimal. The electric shower continued to provide water for a shower but hadn’t the capacity to fill a bath. I fitted lovely 1200 x 800 walk-in showers and some storage cupboards in the space where the baths had been and refurbished the whole bathroom. A new look and one tenant told me that his bill was almost halved. I have not needed to have the EPCs replaced yet, but I look forward to seeing the difference this makes.
One of my favourite features in these flats is the huge balcony, but this is where you need to check before getting an Energy Assessor in. Exterior light bulbs that have been there for years may not, and were not in this case, energy-efficient. I bought new energy-efficient bulbs and that brought the number of energy-efficient bulbs up to 100% – Every Little Helps.
Modern terraced house with mezzanine floor and no loft
I didn’t expect these houses to be the ones that would cost me most to upgrade, but that is how it’s looking. All but one have a high D, I have no idea why one is higher but I will find out. The others are 3 points from a C, but the only things recommended are solar heating, (the boilers are only 4 years old), floor insulation, (I’m not sure what that is exactly but it sounds disruptive) and loft insulation, (there is no loft!). This looks like my best option, though messy, it will probably be quite quick. I’m thinking internal insulation of the ceiling/roof, skim and paint unless I can find another option, but I now need to be certain that this will be good enough for a decent C and hope that we are not forced up any higher. Having always maintained my properties I did not imagine that at this stage in my life I would be taking on several disruptive and messy projects in tenanted properties. Fortunately, at this time, all these little houses are let to single tenants and I am hopeful that if I plan this well, I can work with a local Serviced Accommodation colleague and move them out while it all happens or possibly fit it in with their holidays. I have plenty of time – the advantage of forward planning.
While writing this article, I was contacted by a friend on Facebook who has done some interesting work around reducing heating costs in all-inclusive HMO. A few years back he developed a system that ticked all the right boxes:
- Tenants would have control of heating as the law requires
- Landlords would be confident that they were not paying to heat a property where everyone has gone out but not turned down the heat
- If circumstances changed and someone was off sick or working from home, as is so much the case these days, they could still have heat
The developer is now planning a very interesting new system and his timing is perfect, of course it is, he is a landlord who wants to provide cosy homes, but not see energy wasted.
Hopefully, I will be able to share A sneak preview next month.
Over the years I have enjoyed collecting different types of buildings but there is one which I just didn’t manage to buy.
After the war, many parts of Birmingham and other industrial cities had lost thousands of homes – I remember playing on a “bombbuildin’site” (it was all one word) at the end of my road where the bombs had demolished several homes, leaving wallpaper, staircases and fireplaces on the exposed walls. It’s only now that I look back that I think how strange it was to be allowed in such a dangerous place full of rusty metal, glass, rubble… It was fun at the time and our days were full of laughter and freedom.
There was an urgent need for more homes and Prefabricated homes were built to accommodate the needs of those whose houses had been “bombed out”. They were single-story buildings, bungalows really but we called them “prefabs”. I always remember the lovely gardens, one of the first things people did when they moved in because that was the first time most of the occupiers had had a little garden and they were much loved and cared for. These buildings were emergency accommodations and were meant to last for 10 years. In fact, many lasted until early this century and were only demolished to liberate land for the building of social housing. There is only one little row of about 20 of them which I have passed for years and which I always searched for a for sale board. To be honest, I am not even sure whether they were subject to Right to Buy or whether they are still social housing – in any event, I never did buy one. Maybe I can now console myself with the fact that the nontraditional construction, concrete sheets on metal frames, would probably fail the EPC requirements and would probably cost a fortune to improve.
I learned something new last winter and I shared it here How to Keep Tenants Warm and Cosy and Properties Mould Free – Landlord Insider (landlordvision.co.uk) Now would be a good time to read or re-read this because I can report that I kept the faith and did not alter my heating timer throughout the year. It’s now 9 months since I began doing what I had been advised and my energy bills have dropped when so many people tell me that theirs have increased. It may be counterintuitive, but it works.
