Draft Energy Efficiency (Domestic Private Rented Property) Order 2015
Draft Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015
The Committee consisted of the following Members:
† Alexander, Heidi (Lewisham East) (Lab)
Bradshaw, Mr Ben (Exeter) (Lab)
† Coffey, Dr Thérèse (Suffolk Coastal) (Con)
† Cryer, John (Leyton and Wanstead) (Lab)
Donaldson, Mr Jeffrey M. (Lagan Valley) (DUP)
Flynn, Paul (Newport West) (Lab)
Hamilton, Fabian (Leeds North East) (Lab)
† Heald, Sir Oliver (North East Hertfordshire) (Con)
† Heath, Mr David (Somerton and Frome) (LD)
† Hemming, John (Birmingham, Yardley) (LD)
Hepburn, Mr Stephen (Jarrow) (Lab)
† Hurd, Mr Nick (Ruislip, Northwood and Pinner) (Con)
† Jackson, Mr Stewart (Peterborough) (Con)
† Jenrick, Robert (Newark) (Con)
† Phillipson, Bridget (Houghton and Sunderland South) (Lab)
† Rudd, Amber (Parliamentary Under-Secretary of State for Energy and Climate Change)
† Spelman, Mrs Caroline (Meriden) (Con)
† Wheeler, Heather (South Derbyshire) (Con)
David Slater, Committee Clerk
† attended the Committee
Second Delegated Legislation Committee
Monday 23 March 2015
[Mr Adrian Sanders in the Chair]
Draft Energy Efficiency (Domestic Private Rented Property) Order 2015
4.30 pm
The Parliamentary Under-Secretary of State for Energy and Climate Change (Amber Rudd): I beg to move,
That the Committee has considered the draft Energy Efficiency (Domestic Private Rented Property) Order 2015.
The Chair: With this it will be convenient to consider the draft Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015.
Amber Rudd: It is a pleasure to serve under your chairmanship, Mr Sanders, and I am pleased to open this debate.
The energy efficiency regulations will drive improvements in the least energy-efficient privately rented properties in both the domestic and non-domestic sectors, and require landlords to take action from April 2018 for new and renewing tenancies. The new legislation will also provide domestic tenants with a right to ask for consent to cost-effective energy efficiency improvements to their property from April 2016.
The energy efficiency order extends the tenancies covered by the Energy Act 2011 and is designed to ensure that those tenants living in most domestic agricultural properties can benefit from the energy efficiency regulations. As the order is relatively straightforward, I propose to focus my introduction on the regulations themselves.
I will first give some background on the private rented sector to provide context to the regulations. There are around 1.2 million non-domestic rental properties that make up approximately two thirds of the non-domestic property market. Around one in five of the non-domestic private rented stock falls within the lowest two energy efficiency bands—therefore, with an F or G energy performance certificate rating. In the domestic sector, there are around 4.6 million private rented sector properties in England and Wales, making it the second largest tenure after owner-occupation at about one fifth of the total domestic housing stock. Around 6% of all domestic properties have an F or G EPC rating, but the percentage of F and G-rated properties in the privately rented sector is almost double that, at around 10%.
Although newly built properties in the domestic privately rented sector tend to have higher energy efficiency ratings, a stock of older properties remains, many of which have poor energy efficiency and are difficult and costly to heat. The high proportion of older, untreated properties results in lower energy efficiency. That means higher tenant energy bills, and, for domestic tenants, the likelihood of living in fuel poverty.
Living in private rented accommodation is an independent risk factor that significantly increases the likelihood of a household being fuel-poor—so much so that around a third of all fuel-poor households in England live in the private rented sector, despite the sector only accounting for around a fifth of all households in England and a seventh of the households in Wales. Put simply, the private rented sector has a disproportionate share of the UK’s least energy-efficient properties and fuel-poor households. The fact that nearly one in five non-domestic properties falls below an E EPC rating also shows the huge potential for energy and carbon savings that remains untapped in our country’s non-domestic stock.
Much of the reason for the slower change and poor energy efficiency in the private rented sector is the split incentive, whereby the costs of installing energy efficiency measures traditionally fell to landlords, while the benefits of lower energy bills and a warmer property usually fell to tenants. Various approaches have been tried in the past to improve the energy efficiency of the sector, including voluntary approaches, information services, tax breaks for landlords, and subsidies for the installation of energy efficiency measures. The success of those actions has been limited.
The Government have therefore concluded that well-designed regulations targeted at the very worst properties, and signalled to the market well in advance of coming into effect, will help drive action to improve the building stock and benefit the wider UK. The regulations are game-changing and have been hailed by the UK Green Building Council as
“the single most important piece of green legislation to affect our homes and buildings that has been introduced in the whole of this Parliament.”
This is the first time that the Government are directly targeting energy efficiency in the existing privately rented building stock. Our proposals have been welcomed by landlord groups such as the National Landlords Association, which commended the regulations for striking
“a delicate balance between making clear what is expected and ensuring that there is a realistic prospect of landlords being able to comply.”
The economic case for the regulations is also clear. They will provide overall benefit to the UK of £2 billion in net present value terms over the life of the policy. Furthermore, compliance with the minimum level of energy efficiency provisions of the regulations will provide significant benefits to non-domestic small and medium-sized enterprises of more than £2 billion of net bill savings and more than £3 billion of net bill savings to the non-domestic privately rented sector overall.
On the key aspects, the regulations fulfil a duty in the Energy Act 2011 to implement regulations so that, by 1 April 2016, private domestic tenants will have a right to request consent for energy efficiency improvements where such consent may not be unreasonably refused by the landlord and, by 1 April 2018, privately rented domestic and non-domestic property that falls below a minimum energy efficiency standard, based on the energy performance certificate rating, cannot be let.
The regulations will improve the state of some of UK’s least energy-efficient building stock. By reducing the winter peak demand, they will also improve energy security by targeting the worst properties and reduce
our carbon emissions, which is essential to meeting our statutory domestic carbon budgets and the long-term 2050 goal set by the Climate Change Act 2008, but not at any cost.The regulations have been shaped with significant input from the sector to work with the grain of existing practice. They will encourage cost-effective investment in energy efficiency, but not demand that landlords reach an E EPC at any price. In the domestic sector, provided that a landlord has carried out all the energy efficiency improvements to the property that could be funded through a green deal under the energy companies obligation and any available grant funding, they may continue to let their property. My Department’s analysis suggests that 73% of domestic F and G EPC-rated properties will be able to reach an E EPC using measures that meet green deal finance’s golden rule, which defines the amount of green deal finance that can be borrowed. Estimated savings on bills from measures must always be higher than, or equal to, the cost of repayments. A further 10% can make some improvement, even if they cannot reach an E EPC.
Non-domestic landlords are provided with similar protections. They will be required to carry out all the energy efficiency improvements that can be funded through green deal finance, if it becomes available, or that cost the same or less than their expected energy savings over a seven-year period. My Department’s analysis suggests that 85% of non-domestic properties can be brought up to an E EPC using measures that meet the green deal’s golden rule.
We are also taking care to ensure that the regulations do not drive inappropriate interventions or force landlords or tenants to take decisions that are not in their best interests. They set out specific exemptions for not installing improvements in listed buildings where such improvements would negatively impact on the value of the property by more than 5% and where a landlord cannot get third-party consents, such as planning consent. Landlords will also be able to claim an exemption from installing wall insulation where that could negatively impact the fabric of the building.
We have made the regulations fair and the key message simple to understand: landlords will need to get their properties to an E energy performance certificate rating where they can do that cost-effectively, safely and in accordance with existing legal obligations. Tenants have the right to ask for consent for energy efficiency works, and for such consent not to be unreasonably refused. Clear regulations, signposted in advance, mean higher compliance rates, lower burdens on the sector and less need for enforcement.
We will continue to work with tenants groups, landlords groups, local authorities, local weights and measures authorities and estate agents to ensure that all parties are fully aware of their rights and responsibilities and we will endeavour to use innovative channels to warn tenants and landlords. However, where landlords choose to ignore their responsibilities, we have designed an enforcement regime that we believe will be clear, simple and effective. Landlords will need either to reach the minimum standard or to register an exemption on the central exemptions register, which is a database to be set up and maintained by my Department. Local authorities and local weights and measures authorities can choose to take action to enforce compliance. In addition to the
wider economic benefits I have already mentioned, the minimum standards will decrease the search costs to install ECO measures for eligible householders and so will also reduce the cost of delivering the energy companies obligation. They will facilitate the delivery of the third and fourth carbon budgets at lower cost, and with greater certainty by providing more than 1 million tonnes of carbon dioxide savings between 2018 and 2022 and nearly 2 million tonnes of carbon dioxide savings between 2023 and 2027.In conclusion, the regulations will drive significant change to the energy efficiency of the worst properties in the private rented sector, so improving the lives of tenants living in them, reducing the UK’s carbon emissions, and providing a net benefit to the UK economy of around £2 billion in present value terms.
4.40 pm
Heidi Alexander (Lewisham East) (Lab): It is a pleasure and something of a surprise to serve under your chairmanship, Mr Sanders. My hon. Friend the Member for Sunderland Central (Julie Elliott), who leads on these issues for the Opposition, is currently stuck on a very delayed train from the north-east. She has asked me to pass on her apologies to the Minister and the Committee. I can assure colleagues that I will not detain them for too long. [Hon. Members: “Hear, hear.”] That seemed to be popular.
The Opposition welcome any regulations that help people in the private rented sector who are living in cold, poorly insulated homes. We also welcome any regulations that improve the energy efficiency of non-domestic properties. We will therefore not oppose the regulations we are considering today, but we are concerned that they do not go far enough and that there are loopholes that may mean that the regulations do not help everyone whom they should. This is a particular concern, given how poorly insulated EPC F and G-rated properties are.
I have some specific questions to which I hope the Minister may be able to respond. First, the definitions of domestic private rented property and relevant energy efficiency improvements are complex and somewhat unclear. Can she clarify exactly what those phrases refer to? Secondly, we are concerned that the legislation has been drafted in such a way that there may be circumstances in which it will not apply to EPC F and G-rated properties, for example, when a property is let under a tenancy which is not an assured, regulated or specified agricultural tenancy. Can she explain why this is so and also tell the Committee how many properties will be exempt from the regulations because of that?
Thirdly, there is the issue of houses in multiple occupation. Can the Minister clarify if HMOs are covered by the regulations and if not, why not? What do the Government plan to do to help tenants in those properties? Other properties may not be covered by the regulations, for example, a converted flat in the middle of a large house. There are many such flats in my constituency. In order to upgrade to EPC E, the work that needs to be done in such a flat may require the consent of other property owners. If no consent is forthcoming, does this mean that such properties are exempt from the regulations? I would be grateful for the Minister’s thoughts.
Finally, the definition of the “reasonable steps” that the landlord has to take is still unclear. Can the Minister clarify for the Committee what those steps entail? We are concerned that that offers an easy opt-out for landlords who do not wish to spend the money and do the right thing for their tenants.
In conclusion, while I welcome the steps being taken to tackle the problem of cold homes in the private rented sector and in the non-domestic sector, questions need to be answered. I look forward to hearing the Minister’s thoughts.
4.44 pm
Mr David Heath (Somerton and Frome) (LD): It is a pleasure to serve under your chairmanship, Mr Sanders, in what I confidently predict will be my last Statutory Instruments Committee, not just for this Parliament, but for ever. I congratulate the hon. Member for Lewisham East on stepping into the breach in such an excellent way.
I strongly support these measures, and I think they are absolutely right. One of the things that I found most gratifying during this Parliament has been that the Government have managed to enact so many of the elements of the Fuel Poverty Bill, which I attempted to pass through the House in the previous Parliament, and which I am afraid was defeated by the wish of the then Government not to proceed with those measures.
One of the most gratifying things about the regulations is that they have extended the range of what is available in energy efficiency terms, not just to what one would consider to be the low-hanging fruit—the urban properties with cavity walls where relatively simple measures can be taken—but to those properties that are typical of my constituency, for instance, which are very difficult to make more energy efficient because they normally have rubble-built, solid walls and very often have no damp prevention. There is a high tendency for people in those properties to be subject to completely unacceptable energy efficiency terms, plus they pay more for their energy because they are often reliant on non-grid liquefied petroleum gas or fuel oil provision.
I am particularly grateful to the Government for addressing those issues, especially in the case of private sector rented accommodation. I have one nagging concern and I hope the Minister can put my mind at rest. It is clear what is required of a landlord—I am not sure that I agree entirely with the concerns expressed by the hon. Member for Lewisham East about exemptions, because clearly there will be occasions when the exemptions will have to come into play but one hopes not very often. What is the situation if a tenant, in good faith or perhaps not quite so, requires consent for substantial energy efficiency measures, which in themselves would be within the 5% detriment threshold and therefore the landlord is required to give consent, commences those works—and I think in particular of what might be done to a solid-wall property—and then either fails to complete the works or does so in an unsatisfactory way? What is the remedy for the landlord for the fact that they may have lost considerably more than 5% of the value of the property because a botched job has been done, one which perhaps does not reach the energy efficiency
thresholds in any case? Obviously there may be some civil remedy for damages, but is there anything within the scheme itself to provide such a remedy?I assume that any tenant who is proposing to apply for consent to undertake energy efficiency measures will have exactly the same access to Government support in any of those schemes to which the landlord would be entitled. In other words, anything that the Government provide in terms of energy efficiency grants or whatever would be available to the tenant in exactly the same way, despite the fact that the tenant will only have a limited use of that premise, on the basis of the tenancy agreement and would therefore not be the long-term beneficiary of the energy efficiency scheme that they had invested in. I hope that the Minister can satisfy me on those points but I certainly strongly support the Government’s actions in this respect.
4.48 pm
Amber Rudd: I thank the right hon. Member for Somerton and Frome for his comments; he is absolutely right to draw attention to the fact that these regulations dovetail so well with the fuel poverty strategy. I share his enthusiasm for the fact that that has been something that the Government have successfully achieved and that, as part of addressing fuel poverty generally, having these regulations in the private rented sector is essential.
The right hon. Member asked some specific questions about the role of landlords and what happens when there is, as he put it, a botched job; I will have to come back to him on that. As he will be aware, the order sets out the scope but does not deal with some of the detail, but he raises a good question. One point that he touched on was the issue of the tenant’s position when requesting these items and what the relationship might be like with the landlord. I asked that question myself and have been careful to examine the current regulations.
As my right hon. Friend will know, in February the Government announced steps to protect tenants from retaliatory eviction. I was concerned that if tenants raised such matters, they might face consequences, but under those Government plans a landlord is not permitted to evict a tenant in certain circumstances, including where they have raised a legitimate complaint about the condition of the property and where a local authority has issued a notice confirming that a repair needs to be carried out to avoid a risk to health. I will come back to him on the other matter he mentioned, but I share his enthusiasm for the programme and the attempt to reduce fuel poverty in particular.
I am not surprised that the hon. Member for Lewisham East made some interesting points, which I will now address. The Opposition’s position is familiar: they say, “Yes, this is good, but we could do it slightly better.” It is important to have their support, because these are important, groundbreaking regulations that will help people in fuel poverty. I wish that there was a little more support here, but I hope to satisfy her by providing some of the corrections and clarifications she has asked for on her various concerns.
One of the key things I will highlight is that we will have a programme to ensure that all stakeholders are aware of the actions we are taking. To have the support of the National Landlords Association is a considerable breakthrough and we are hopeful that it will make clear in its communications to its landlords that energy efficiency is something that must be covered.
The hon. Lady asked specifically what properties are in scope of the regulations and in particular what are domestic privately rented properties and non-domestic privately rented properties. Domestic and non-domestic PR properties are both in scope and a property is a domestic PR property if it is let on an assured tenancy, a regulated tenancy or a tenancy type prescribed in the order we are debating. The order brings the majority of domestic tenancies arising in the agricultural sector within the definitions of domestic PR property, which she specifically asked for. Those are all tenancies of dwelling houses.
A non-domestic property is one that is let on a tenancy and is not a dwelling. The hon. Lady should take some comfort that the definition includes most of what we would intuitively think is a domestic or non-domestic privately rented property tenancy. It certainly includes HMOs and would likely include the description she gave of a flat within a house.
The hon. Lady also asked about tenant access to incentives. Tenants will have the same access as landlords and, where landlord consent is needed, the landlord may not unreasonably refuse to provide that. She also asked about whether HMOs are in scope and I have reassured her on that.
The hon. Lady questioned the need for so many exemptions. Despite our enormous enthusiasm for this programme, as I said in my earlier comments we do not want to do it at any cost. There need to be some
exemptions to ensure that we do not overdo it in terms of what is reasonable for landlords to achieve. I point out, however, that exemptions last only for five years, which allows for the realistic chance that circumstances such as fuel prices, funding mechanisms and the cost of improvements may have changed enough for improvements to be undertaken.Of course, the regulations will be in place until 2020 and after that it may be that we will have new regulations that learn from the good work that I hope will follow from the original regulations. We will continue to work with stakeholders to deliver the regulations efficiently and, by so doing, continue to improve the energy performance of building stock and the lives of the people who work in those buildings. I commend the regulations to the Committee.
Draft energy efficiency (Private rented property) (England and Wales) regulations 2015
That the Committee has considered the draft Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015.—(Amber Rudd.)