Guidance

Guidance on PRS exemptions and Exemptions Register evidence requirements

Updated 22 March 2019

1. Overview

The Minimum Energy Efficiency Regulations (the Regulations) apply to all privately rented properties in England and Wales which are legally required to have an Energy Performance Certificate (EPC), and which are let on a relevant tenancy type. See the guidance documents for the definition of relevant tenancy.

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

Where an exemption applies, the exemption must be registered by the landlord (or an agent for the landlord) before it can be relied on; this registration is made on a self-certification basis and an exemption will apply from the point at which it is registered.

Where an EPC F or G rated privately rented property is not covered by the Regulations, for example a property which is not legally required to have an EPC, or one not let on a relevant tenancy type, an exemption will not be required. In addition, properties which are covered by the Regulations and which have been improved to a minimum of EPC E will not need to be registered on the Register.

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.

The following summaries outline the available exemptions and the evidence requirements for each, but landlords should read the full guidance on the Minimum Energy Efficiency Regulations to fully understand their obligations before deciding on their course of action.

2. Information required for all exemptions

• the address of the relevant rental property
• which exemption type the landlord is registering
• a copy of a valid Energy Performance Certificate for the property.

3. ‘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).

Applies only to domestic property.

If the ‘high cost’ exemption applies, the landlord must register this on the PRS Exemptions Register. To support this exemption, the landlord is required to upload copies of 3 quotations from different installers, each showing that the cost of purchasing and installing the cheapest recommended improvement exceeds £3,500 (inc. VAT); and confirmation that the landlord is satisfied that the measure(s) exceed this amount. The exemption will be valid for 5 years; after this time the exemption will expire and the landlord must try again to improve the property’s EPC rating to meet the minimum level of energy efficiency. If this still cannot be achieved, then a further exemption may be registered.

Please note: this exemption should only be used where there are no improvements which can be made for £3,500 or less (and analysis suggests that the majority of EPC F and G rated properties can receive at least one improvement for this amount or less). If one or more recommended improvements can be made for £3,500 or less, and these improvements fail to improve the property to EPC E, then the ‘All Improvements Made’ exemption should be registered (see number 5) where all the “relevant energy efficiency improvements” for the property have been made but the property remains sub-standard.

4. ‘7 Year Payback’ Exemption

Where a recommended measure is not a “relevant energy efficiency improvement” because the cost of purchasing and installing it does not meet the 7 Year Payback test (Regulation 28(3)).

Applies only to non-domestic property.

The prohibition on letting non-domestic property below an EPC energy efficiency rating of E does not apply if a landlord can show that the cost of purchasing and installing a recommended improvement or improvements does not meet a simple 7 year payback test. A measure, or a package of measures, will fail the 7 year payback test where the expected value of savings on energy bills that the measure (or package of measures) is expected to achieve over a period of 7 years, starting with the date the installation is completed, are less than the cost of repaying it. The formula for the 7 year payback test is set out in regulation 28(3) – (8) and are described in chapter 2 of the non-domestic guidance.

Information required: if registering an exemption of this type, the landlord should upload copies of 3 quotes for the cost of purchasing and installing the measure from qualified installers, and confirmation that the landlord (or where the landlord is not a company under S1 of the Companies Act 2006, confirmation that a director)(or in any other case, confirmation that a person exercising management control in relation to the landlord) is satisfied that it does not meet the 7 year payback rule. The landlord should also upload a copy of the cost calculations made to demonstrate this.

The exemption will last 5 years; after this time it will expire and the landlord must try again to improve the property’s EPC rating to meet the minimum level of energy efficiency. If this cannot be achieved then a further exemption may be registered.

5. ‘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.

The requirement to meet the minimum level of energy efficiency (EPC E) does not apply where a landlord has made all the ‘relevant energy efficiency improvements’ that can be made (or there are none that can be made), and the property remains below EPC E (please see the published guidance documents for the definition of ‘relevant energy efficiency improvements’).

If this is the case, the situation must be registered on the PRS Exemptions Register before the property can be let on a new tenancy (or to allow it to continue to be let after 1 April 2020 in the domestic sector, and after 1 April 2023 in the non-domestic sector).

Information Required: for an exemption of this type, the landlord may be relying on information contained within the property’s EPC, which is one of the pieces of information which must already be uploaded to the Register for any exemption type. However, if a landlord is relying on information contained in a separate report, then they will need to upload a copy of this relevant report also to support the exemption.

Once registered, the exemption will last 5 years; after this time it will expire and the landlord must try again to improve the property’s EPC rating to meet the minimum level of energy efficiency. If this cannot be achieved then a further exemption may be registered.

6. ‘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.

The special provision is that a recommended energy efficiency measure is not considered to be a relevant measure where it is:

• cavity wall insulation, external wall insulation or internal wall insulation (for external walls), and
• where the landlord has obtained written expert advice indicating that the measure is not appropriate for the property due to its potential negative impact on the fabric or structure of the property (or the building of which the property forms a part).

The expert advice the landlord provides must be obtained from one of the following independent experts:

• an architect registered on the Architect Accredited in Building Conservation register
• a chartered engineer registered on the Institution of Civil Engineers’ and the Institution of Structural Engineers’ Conservation Accreditation Register for Engineers
• a chartered building surveyor registered on the Royal Institution of Chartered Surveyors’ Building Conservation Accreditation register
• a chartered architectural technologist registered on the Chartered Institute of Architectural Technologists’ Directory of Accredited Conservationists.

Alternatively, if the advice is not, or cannot be, obtained from one of the above experts, advice may be obtained from an independent installer of the wall insulation system in question who meets the installer standards for that measure, as set out in Schedule 3 to the Building Regulations 2010.

Information Required: When registering an exemption of this type the landlord will need to upload to the register, a copy of the written opinion of the relevant expert stating that the property cannot be improved to an EPC E rating because a recommended wall insulation measure would have a negative impact on the property (or the building of which it is a part).

Once registered, the exemption will last 5 years; after this time it will expire and the landlord must try again to improve the property’s EPC rating to meet the minimum level of energy efficiency. If this cannot be achieved then a further exemption may be registered.

7. ‘Consent’ Exemption

Third party consent exemption (Regulation 31(1) and Regulation 36(2)).

Applies to domestic and non-domestic property.

Depending on circumstances, certain energy efficiency improvements may legally require third party consent before they can be installed in a property. Such improvements may include (but are not limited to) external wall insulation or solar panels which can require local authority planning consent, consent from mortgage lenders, or other third parties. Consent from a superior landlord may be required where the landlord is themself a tenant. Consent may also be required from the current tenant of the property or other tenants depending on the provisions of the tenancy or tenancies.

It is not practical to provide an exhaustive list of all situations where third party consent requirements may apply. Information on when and where consent is required will be contained within relevant documentation, for example in the landlord’s lease or mortgage conditions.

Information Required: when registering an exemption of this type the landlord will need to upload to the register, a copy of any correspondence and/or relevant documentation demonstrating that consent for a relevant energy efficiency measure was required and sought, and that this consent was refused, or was granted subject to a condition that the landlord was not reasonably able to comply with.

Once registered, the exemption will generally last 5 years; after this time it will expire and the landlord must try again to improve the property’s EPC rating to meet the minimum level of energy efficiency. If this cannot be achieved then a further exemption may be registered. Please note however that, where improvements cannot be made because consent could not be obtained from the current tenant of the property, the exemption will only remain valid for as long as that tenant remains the tenant. The improvement would then need to be made before the property is let on a new tenancy.

8. ‘Devaluation’ Exemption

Property devaluation exemption (Regulation 32(1) and Regulation 36 (2)).

Applies to domestic and non-domestic property.

An exemption from meeting the minimum standard will apply where the landlord has obtained a report from an independent surveyor who is on the Royal Institution of Chartered Surveyors (RICS) register of valuers advising that the installation of specific energy efficiency measures would reduce the market value of the property, or the building it forms part of, by more than five per cent.

A surveyor’s report prepared to support this exemption must clearly state all the recommended energy efficiency measures for the property that would lead to it being devalued. Please note: a landlord will still be required to install any relevant improvements recommended for their property that are not covered by the surveyor’s report (unless another exemption applies).

Information Required: when registering an exemption of this type the landlord will need to upload to the register, a copy of the report prepared by an independent RICS surveyor that provides evidence that the installation of relevant measures would devalue the property by more than 5%.

Once registered, the exemption will generally last 5 years; after this time it will expire and the landlord must try again to improve the property’s EPC rating to meet the minimum level of energy efficiency. If this cannot be achieved then a further exemption may be registered.

9. ‘New Landlord’ Exemption

Temporary exemption due to recently becoming a landlord (Regulation 33(1) & Regulation 36 (2)).

Applies to domestic and non-domestic property.

The Regulations acknowledge that there are some, limited circumstances where a person may have become a landlord suddenly and as such it would be inappropriate or unreasonable for them to be required to comply with the Regulations immediately. If a person becomes a landlord in any of the circumstances set out below, a temporary exemption from the prohibition on letting a sub-standard property, or on continuing to let a sub-standard property, will apply. The exemption will last for 6 months from the date they become the landlord.

The circumstances are:

• the grant of a lease due to a contractual obligation (this is intended to cover a situation where a contract was entered into on a contingent basis, regardless of whether it was entered into before or after the Regulations came into force)
• where the tenant becomes insolvent and the landlord has been the tenant’s guarantor (in this situation, the tenant’s guarantor becomes a landlord when taking over the lease)
• the landlord has been a guarantor, or a former tenant, who has exercised the right to obtain an overriding lease of a property under section 19 of the Landlord and Tenant (Covenants) Act 1995 (for the avoidance of doubt, a “guarantor” who exercises this right under the 1995 Act is the guarantor of a former tenant)
• a new lease has been deemed created by operation of law
• a new lease has been granted under Part 2 of the Landlord and Tenant Act 1954
• a new lease has been granted by a court order, other than under Part 2 of the Landlord and Tenant Act 1954.

Additionally, from 1 April 2020, when the minimum standard applies to all privately rented properties that are occupied by tenants, a temporary exemption of 6 months will apply from the date from which a person became a landlord in the following situation:

• A person becomes the landlord on purchasing an interest in a property and, on the date of the purchase, it was let on an existing tenancy.

In all cases landlords are advised to obtain their own independent legal advice if they are unsure about whether any of these temporary ‘recent landlord’ exemptions apply in their case.

Information Required: if registering this exemption, the landlord must provide the date on which they became the landlord for the property, and a narrative explanation of the circumstances under which they became the landlord (any of the circumstances listed above).

The exemption will last for 6 months from the date from which the landlord became the landlord. After 6 months the exemption will expire and the landlord must either have improved the energy efficiency of the property to at least EPC band E, or have registered another valid exemption (should one apply), if they intend to continue letting.