Environmental concerns have big impact on rental property ownership

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Just as residential landlords are contemplating the costs of bringing older properties up to the proposed new standard – very likely EPC band “C” required by December 2025 – so too are commercial landlords.

See: Compulsory EPC band “C” by 2025 causing confusion

Covid friendly

Those with office and retail investments, and some industrial buildings, also face having to pay out the substantial additional costs involved in making their buildings Covid friendly.

These prospects will in the meantime have a negative impact on the valuation of those properties needing this additional work, costs which will inevitably be factored into any purchase decision when buyers do their sums.

New research* conducted by international environmental consultants Deepki shows how environmental sustainability in buildings can have a dramatic affect on their value.

Valuation concerns, commercial property

Deepki claims to be the only company in the world offering a fully populated Environmental, Social, and Governance (ESG) data intelligence platform to help commercial real estate investors, owners and managers improve the ESG performance of their real estate assets, and therefore enhance value.

Deepki’s recent research finds the majority of respondents predicting that commercial real estate assets will depreciate by over 20% when they have poor ESG credentials. Around 66% of UK institutional commercial real estate investors and property professionals say they have seen a decrease in both the capital and rental value of their portfolios due to poor sustainability performance.

This, coupled with the hit that office and retail property has sustained as a result of Covid-19, and their effect on values has been quite dramatic. For example, rental values on some high street retail units have fallen by over 50% in the last year or two.

Over three-quarters of the respondents to the Deepki surveys predict the capital value and rental income of their real estate assets will depreciate by over 20% just on their ESG performance alone, highlighting the growing importance of commercial real estate sustainability in the UK.

A high carbon footprint

The research also draws attention to the scale of the ESG challenge facing UK commercial real estate. Around 12% of those owners questioned reported that 5% to 10% of their real estate portfolio has poor energy efficiency or a high carbon footprint. A further 21% and 42% said that this was the case for 10-15% and 15-20% of their assets respectively.

Action being taken to address poor ESG performance

Here is a list of the actions the survey respondents said they were likely to take to address the poor ESG performance of their real estate portfolios in the future:

• 72% said that they would actively engage with the property management team to make improvements

• 61% said they would invest in improving energy efficiency

• 45% said they would work with a third party to develop an ESG strategy and measure performance against KPIs

• 28% said they would demolish and rebuild failing assets

• 10% said they would sell their assets

Katie Whipp, Head of Deepki UK, said:

“ESG performance is now fundamental to the financial performance of assets within the UK commercial real estate sector, affecting both capital value and rental income. Real estate investors and owners recognise that they will see the value of their assets decline if they do not make the transition to net zero. However, this path is often complex and requires data intelligence, analysis and the expertise to take the appropriate action.”

Deepki says its scalable SaaS platform enables clients to collect ESG data, get a comprehensive overview of their portfolio’s ESG performance, establish pathways, assess their performance and report to key stakeholders, facilitating their transition to net zero. The platform is supported by carbon and ESG experts who partner with clients across data collection and analysis, through to ESG strategy definition and implementation.

The RICS Red Book and sustainability

RICS now say that effective from 31 January 2022, specific good practice reporting requirements on sustainability have be included as part of the Red Book.

“To further deliver the practical application of these standards we will be launching a new guidance note Sustainability and ESG in commercial property valuation and strategic advice.

“The updated guidance provides practical and globally relevant principles for the delivery of the sustainability and ESG requirements required by the Red Book.”

This new global Guidance Note will, RICS says:

• Put RICS professionals at the forefront of market trends and deliver on client demand for sustainability and ESG reporting in valuation and strategic advice.
• Provide a practical framework for delivering on ESG reporting requirements in professional valuation advice.
• Empower our professionals to give practical valuation advice informing sustainable, socially responsible investments.

*Research conducted by Pureprofile with 100 institutional commercial real estate investors and commercial real estate professionals in October 2021. Read the full report, here.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – Environmental concerns have big impact on rental property ownership | LandlordZONE.

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Holiday lets loophole to be closed to prevent tax evasion

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Landlords and second-home owners have been told to pay council tax if they can’t prove that their properties are genuine holiday lets after the government announced it was closing a tax loophole.

Some owners currently claim their often-empty properties are holiday lets to avoid paying council tax and access small business rates relief by declaring an intention to let the property out to holidaymakers.

Following concerns that many never actually let their homes and are unfairly benefiting from the tax break, from April 2023, second homeowners will have to prove holiday lets are being rented out for a minimum of 70 days a year to access small business rates relief, by providing evidence such as the website or brochure, letting details and receipts.

Properties will also have to be available to be rented out for 140 days a year to qualify for this relief.

Privileged positions

Secretary of State for Levelling Up, Michael Gove (pictured), says: “We will not stand by and allow people in privileged positions to abuse the system by unfairly claiming tax relief and leaving local people counting the cost.

The action we are taking will create a fairer system, ensuring that second homeowners are contributing their share to the local services they benefit from.”

A government consultation revealed that the overwhelming majority of respondents agreed that the current criteria should be strengthened.

Some tourism trade bodies argued that it gave second homeowners who might let out their property on an ad-hoc basis, an unfair commercial advantage over professional businesses.

Owners of holiday lets that can’t meet the strengthened criteria have been warned to notify the Valuation Office Agency as soon as possible so that their property can be assessed as domestic and revert to a council tax valuation – or risk a large, backdated council tax bill.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – Holiday lets loophole to be closed to prevent tax evasion | LandlordZONE.

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HMRC gives Self-Assessment taxpayers more time to ease COVID-19 pressures

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HM Revenue and Customs (HMRC) has decided to waive late filing and late payment penalties for Self-Assessment taxpayers for one month – giving taxpayers the extra time, if they need it, to complete their 2020 to 2021 tax return and pay any tax due.

HMRC says it recognises the pressure faced this year by Self-Assessment taxpayers and their accountant.

This years as a one-off the penalty waivers give taxpayers who need it more time to complete and file their return online and pay the tax due without worrying about receiving a penalty.

The deadline to file and pay remains 31 January 2022. The penalty waivers will mean that anyone who cannot file their return by the 31 January deadline will not receive a late filing penalty if they file online by 28 February

For anyone who cannot afford to pay their Self-Assessment tax by the 31 January deadline, they will not receive a late payment penalty if they pay their tax in full, or set up a Time to Pay arrangement, by 1 April.

Interest will be payable from 1 February, as usual, so it is still better to pay on time if possible.

See: HMRC gives Self Assessment taxpayers more time to ease COVID-19 pressures

If you cannot afford to pay your latest bill then you can set up a payment plan to spread the cost of your latest Self-Assessment bill if all the following apply: you owe £30,000 or less you do not have any other payment plans or debts with HMRC your tax returns are up to date it’s less than 60 days after the payment deadline.

You can choose how much to pay straight away and how much you want to pay each month. You will have to pay interest.

See: Pay your Self Assessment tax bill

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – HMRC gives Self-Assessment taxpayers more time to ease COVID-19 pressures | LandlordZONE.

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BREAKING: Landlords left out of cladding remediation fund initiative – for now

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Housing secretary Michael Gove has revealed that landlords will not be included in the cladding remediation fund initiative for affected residential tower leaseholders announced this week.

A hint of this was given in the original announcement that the £4 billion ‘fund’ to remediate cladding on towers under 18.5m but over 11m tall would be for ‘leaseholders living in their own flat’.

But his officials have now confirmed that Gove has decided that the funding will be targeted initially at owner-occupiers and that ‘negotiations…will explore whether this support should extend to other leaseholders such as landlords’.

In a statement released today, Gove says: “We have scrapped the proposal for loans so that leaseholders living in their own medium and high-rise buildings should not pay a penny to fix dangerous cladding.

“We will work with industry to ensure that the support is directed firstly at those leaseholders living in their own homes.

“Working with members of both Houses, we will look to bring a raft of leaseholder protections into law through our Building Safety bill.
“And we will restore much needed common sense on building safety assessments, ending the practice of too many buildings being declared unsafe.”

“More than 4 years after the Grenfell Tower tragedy, the system is broken.

“Leaseholders are trapped, unable to sell their homes and facing vast bills.

“But the developers and cladding companies who caused the problem are dodging accountability and have made vast profits during the pandemic whilst hard-working families have struggled.”

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Gove closes business rates for nonholiday holiday homes

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Homeowners who leave properties empty while pretending to let them to holidaymakers will be targeted by HMRC under the new rules that holiday lets must be rented out for a minimum of 70 days a year to qualify for business rates.

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Letting agent not responding to my hand-delivered letter

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I am a first-time Landlord and the Letting agent does not respond to my hand-delivered twice repeated letter regarding a tenant complaint.

As I live in the same block of flats, I dealt with the tenants’ failed immersion heater within 2 days.

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‘Think carefully’ before going ahead with EPC upgrades, warns expert

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An energy expert has sought to reassure landlords that they may not need to spend huge sums retrofitting their properties to raise EPC ratings – at least not in the short term.

Jonathan Murton (pictured), director of energy efficiency consultants Murton & Co, says landlords should think carefully about how they spend their money as some retrofit measures won’t have as much impact on an EPC.

As electricity is considered a dirty fuel, for example, putting solar panels on a property could have a more significant impact on its rating than improving wall and window insulation, he tells LandlordZONE.

Under Minimum Energy Efficiency Standards (MEES), EPC regulations are being revised so that the minimum rating (currently a band E) will become a band C from 1st April 2025.

This means that landlords will need to upgrade their properties to achieve an EPC band C before they can grant a tenancy. But the government has said that eventually, these properties will have to attain a ‘B’ rating.

But Murton adds that if works are estimated to cost more than £3,500, landlords can apply for a five-year exemption, while changes to building regulations set for June mean that they could find themselves with a better EPC rating if they get an assessment in July.

No guarantee

One worried landlord shares many others’ concerns that EPCs are not ‘fit for purpose’ when he says that even if a property has roof insulation, double glazing and a modern combi-boiler along with LED lights, it won’t guarantee a C-rating on an EPC.

“Many private, council, social housing and private landlord properties are not capable of meeting a C as an EPC rating, no matter what improvements are done to them,” he says.

Murton admits that while the EPC system is not perfect, it’s the best tool to quickly identify the energy performance of a particular building and how this compares with other buildings.

He adds: “It’s true that whatever you do to some houses, they might not get a C rating, however landlords should talk to their local energy assessor and interrogate the EPC to work out an investment strategy.”

Read more about EPC confusion among landlords.

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