Who pays for energy efficiency improvements in blocks of flats?

/ Agents, Blocks of flats, Freeholders, Landlords, Leaseholders, News

Since 1 April 2018* , the new Minimum Energy Efficiency Standard (MEES) has made it illegal for leaseholders who sub-let flats to agree new tenancies if the flat does not achieve at least an EPC band E rating for energy efficiency.

Guest blog by Benjamin Hume**

After April 2020 it will also be illegal to continue extending existing tenancies.

With predictions that one in four households in the UK will be renting by the end of 2021, there are few blocks that won’t have at least one sub-let flat, and if the overall energy efficiency is Band F or G, the leaseholder owners may look to the service charge budget to fund improvements – and with most private rental leases being relatively short term, the problem may come up sooner rather than later. Few sub-letting landlords can willingly afford to have their property empty.

Letting agents and landlords will now be checking their ratings, as failure to comply could result in a fine of up to £5,000 and even being banned from letting the property out.

And it raises a question for everyone living in the block.  How do the obligations of an individual sub-letting landlord affect the block of flats in general?  It may be that necessary improvements are the leaseholder’s own responsibility, such as upgrading of windows, a new boiler, etc, in which case all well and good.

Is the leaseholder responsible for MEES if they let their flat?

However, there can be serious consequences to leaseholders, especially in older or listed buildings, where improvements that need to be made are part of the communal responsibilities for a freeholder or management company.

This could be particularly tricky if the lease does not allow for improvements to be paid for by the service charge funds. In such a case, where does the responsibility lay in terms of work and who pays it?

The pragmatic approach, if the work is minor such as loft insulation in a communal loft of a small block, and all leaseholders will benefit is to seek agreement for the works to be carried out and cost shared.

However, a problem could occur if the block is larger and the improvement works required to reach a minimum energy performance of E would cost the leaseholders significant amounts. If the ratio of owner occupiers to renters is high, you may struggle to obtain the unanimous consent between leaseholders.

What is the solution? Anyone who owns and sublets a flat and who is concerned about their energy rating should talk to the freeholder and management company directors now.

Explain what work is required and see if any other leaseholders also share the same problem, or if owner-occupiers are also keen to boost their energy efficiency and comfort. Open the dialogue to see what options you have based on your lease, likely costs and the willingness of your fellow leaseholders to contribute.

A word to the wise, this may not be the end of the story. If you’ve scraped through with an E rating, be aware that the MEES regulations include a requirement for a regular five-yearly review of their effectiveness, the first of which has to take place by April 2021.

If the UK is to meet its target to reduce its greenhouse gas emissions by at least 80 per cent by the year 2050, relative to 1990 levels, it’s likely that major changes will need to be made. If you are investing in improvements, it might be worth aiming higher than the minimum.

 FP488(625)-2018

 

* http://www.arla.co.uk/news/october-2017/government-issue-guidance-on-mees-for-england-and-wales.aspx

* * Benjamin Hume is Managing Director at Evolve Block Management.

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