Property Regulation (Holiday Lettings)

Andrew Stephenson Excerpts

Tuesday 14th June 2011 Westminster Hall

[Andrew Stephenson (Pendle) (Con)]

It is a pleasure to speak under your chairmanship, Mrs Brooke. I am grateful for the opportunity to initiate this debate on the effect of property regulation on holiday lettings. This debate will be of interest to colleagues representing constituencies with beautiful countryside, coastline or other features that lend themselves to tourism. I am glad to say that Pendle is one such constituency, with rolling countryside and picturesque villages. Only last week, plans for a new 76-berth marina were approved.

Properties that are made available to let for holidaymakers are a vital part of tourism in the UK. Typically, these are attractive, domestic properties, owned by a couple or a family, and some are managed by an agency. They are the smallest of small businesses and in great need of protection from fruitless and costly regulation.

I have called this debate because I am concerned that holiday lettings are not getting the protection that they need. I wish to start with a quote from a “Dear colleague” letter that I received only last week from the Minister of State, Department for Business, Innovation and Skills, my hon. Friend the Member for Hertford and Stortford (Mr Prisk). The letter mentions the “one in, one out” system of regulatory control introduced by the Government. Apparently, planned regulations have been cut from 157 to just 46, with only 11 of those adding to the regulatory cost on businesses. I welcome that, and emphasise that it is my intention to help the Government by identifying where they can clearly go further. I believe that we all want small companies to be relieved of pointless, costly and dubious regulations, and I applaud the Government’s record on that so far.

The letter finishes by saying:

“We are continuing to work hard to cap the cost of new regulations. In addition, we are tackling the stock of existing regulations, ending the ‘gold plating’ of EU regulations and have scrapped measures that would have cost SMEs £350 million each.”

However, holiday lettings face two costly challenges in upcoming regulations, one of which is being defended as a European Union requirement when it is not being adopted by any other European country. I refer to the change due to happen at the end of this month, whereby holiday lettings will be required to provide an energy performance certificate, and to the review of the controlled waste regulations that are due to be introduced later this year. Both will force an unnecessary, costly, pointless and, I believe, legally questionable burden on holiday lettings, doing damage to British tourism in my constituency and many others. I hope to present a case that the Government can and should reconsider both regulations.

Let me start by addressing the controlled waste regulations. On 14 January, the consultation closed on proposals to replace or amend the Controlled Waste Regulations 1992. It was a joint consultation carried out by the Department for Environment, Food and Rural Affairs and the Welsh Assembly Government. Will the Government look again at these proposals, which would place an unfair cost on the shoulders of small business owners?

Hoseasons, an agency representing those wanting to let their properties for self-catering holidays, which employs about 500 people in my constituency, produced a submission highlighting its concerns about the proposed changes, stating that they could damage the viability of letting self-catering holiday cottages. Having first been scheduled to come into effect on 6 April, the document has been postponed by DEFRA and will come into force sometime in the near future.

The publication tells us that waste from domestic properties used in the course of a business for the provision of self-catering accommodation will now be classed as commercial waste. This causes a discrepancy between properties that are let for long-term domestic residence and properties that are let for self-catering holidays. The person letting their property for the full calendar year has their tenants’ waste classed as domestic waste, whereas the person letting their property as a holiday cottage for more than 140 days of the year will be charged commercial rates, even though the property may be empty for the majority of the year.

That seems wrong, because the use of both properties is fundamentally the same: both are used for living in as a place of residence, and the owner of the property makes a profit in both cases. The injustice is that the owner of a holiday cottage incurs extra expense without necessarily receiving more income. That may lead owners to decide to let their property full time, to lessen their outgoings and increase their income. This in turn could impact the strength of the rural tourism industry, because the properties may no longer be viable as holiday lets. More than 67 million domestic holiday trips were made in 2009. I am sure that everyone will agree that the regulations are impacting the future not only of agencies such as Hoseasons in my constituency, but of every individual who lets their property to holidaymakers for more than 140 days of the year.

If we look at the proposals of the controlled waste regulations, we will see that the amount and type of waste in question is the same. Do we really need to charge different rates for the same collection, based on whether a property is being rented for a week or a year? Section 75 of the Environmental Protection Act 1990 defines household waste as from a domestic property that is solely for the purposes of living accommodation. Defining this waste as commercial would presumably require a separate collection service. Would this mean heavy-duty refuse trucks pounding down rural roads just to get to what are often small cottages, or are holiday lettings being asked to pay more for the same service, in which case, why increase the cost of waste collection?

My final point in relation to the regulations is on recycling, an issue important to us all. Most local authorities offer a free collection service of recyclable materials from all domestic properties. Classing waste from holiday properties as commercial would make them ineligible for this free service, thus providing a disincentive to recycle. The last time I stayed in a holiday let was a few years ago, when I decided to spend the new year with a group of friends. Needless to say, while, naturally, we are all very responsible drinkers, our stay resulted in several empty wine and beer bottles, which were dutifully placed in a recycling box for disposal when we left. I fail to see how making such properties ineligible for domestic recycling services—meaning that I would have had to put those bottles in a commercial waste bin—will do anything to help the environment. Will the Government look at the regulations, so that owners and guests alike are encouraged to recycle and can assist local authorities in meeting recycling targets?

I now turn to energy performance certificates, which were first introduced in England and Wales on 1 August 2007. They are required only for newly purchased or rented accommodation. The question is whether a holiday letting should fall into that category. I would like to run through a few of the reasons given for why they should, and why those reasons are not persuasive.

[Anne Marie Morris (Newton Abbot) (Con)]

I commend my hon. Friend for calling this debate, because holiday lettings are key to our local tourism industries. I am glad that he has raised that point. Does he agree that the EPC certificate will, effectively, become a tax on tourism? It will also be extremely hard to enforce, because a lot of the lettings are not done through agencies. That, combined with the Finance Bill changes, which change the categorisation for relief, will give holiday lettings, which are small businesses, a real problem.

[Andrew Stephenson]

I thank my hon. Friend for that point. I know that this is an issue close to her heart. The certificate will be hard to enforce, because it applies only to holiday cottages that are being let for more than 140 days a year. How an owner of a holiday let will decide whether it will be let for more than 140 days over the coming year is up in the air. How can anyone predict how good, bad or indifferent the coming season will be? My hon. Friend has made a good point about how the provision will be enforced. I was not going to address that issue, but it is critical.

EPCs would not serve holidaymakers, because those who stay in a holiday letting do not pay the energy bills. They have no need to see an EPC, unlike a prospective buyer or tenant, who needs to see one when looking at the energy performance of a property. When someone rents a property long term, they become liable for the energy bills, which is something that a holidaymaker in a holiday let never becomes.

The argument could be made that a holidaymaker would prefer to stay in an energy-efficient property, purely for environmental reasons. If so, we already have ways for customers to identify not just environmentally friendly holiday lettings, but those that have gone the extra mile through schemes such as the green tourism awards. Malkin Tower farm in Blacko in my constituency is an example of an excellent holiday letting that has been awarded a green tourism award and was the 2008 winner of the Pendle environmental business award.

One could argue that all properties ought to have an EPC, since all properties consume energy and we need to tackle climate change. Therefore, according to that argument, holiday lettings should have an EPC. I think that the fact that that is not Government policy—as I found out when I asked my hon. Friend the Minister, in a written question, what the policy was—means that it cannot be the reason why the Government want to push ahead with introducing EPCs for holiday lettings. The only reason that can be given for this additional cost and red tape on small business is the idea that this change will bring us in line with Europe, specifically the energy performance of buildings directive. That is the justification the Minister gave me on 7 June in response to a written question on the subject asking how the new rules could be brought in, given the moratorium on new regulations from April 2011 for businesses with fewer than 10 people.

It will therefore surprise hon. Members to learn that England and Wales are the only EU countries currently choosing to force EPCs on holiday lets. We should remember that that change is due to come into force on 30 June this year, which is a matter of days’ time. To be fair, France previously required EPCs for holiday lets but, after consideration and consultation, it revoked the law requiring them. I believe that, since 12 July 2010, no other EU country has forced EPCs on to holiday lettings and that England and Wales will be the only countries doing so.

I know that because I have, again, consulted Hoseasons, which has sister companies operating in the holiday letting market in more than 20 countries around Europe. It tells me that none of those companies reports any requirement for EPCs for holiday lets and it is therefore confused that the Government believe we are being brought into line with Europe. This is a classic case of the UK gold-plating an EU regulation—something that Ministers had promised to stop.

For the avoidance of any confusion, I understand that the EPBD states that all buildings are subject to the regulations unless specifically excluded. As holiday lets are not specifically excluded, it has been construed that the regulations must apply to them. However, the regulations also state that EPCs should apply only where a building is to be sold or rented. The question comes back to whether, when a customer makes a booking for a holiday let, that creates a tenancy, with the legal ramifications that go with it. I have received a copy of a document from Local Government Regulation that clearly suggests that it does not. I know that it has been in contact with the Department for Communities and Local Government to express its views on the matter and to make similar points to those I am raising today; for example, the fact that the holidaymaker simply has no benefit from having access to an EPC for the property where they are staying. It is fair to say that I agree with Local Government Regulation in its considered and sensible opinion:

“To apply ‘rent’ in the usual sense to holiday accommodation is absurd and inconsistent with the generally accepted understanding of the term ‘to rent’”.

Given that no country in Europe takes such a view, why does the DCLG, even when it has received advice to the contrary from Local Government Regulation? I hope that the DCLG will reconsider its position as a result of today’s debate.

I come back to what I said at the beginning: it is my intention today to help the Government here. There is a real need to cut regulation, to free up small business and to kick-start growth. Overall, the Government have done exceptionally well so far on that score. The Government’s red tape challenge aims to reduce the amount of unnecessary regulation on business, but introducing unnecessary EPCs and waste regulations on holiday lettings is surely going in the wrong direction.

With an estimated 62,500 holiday lettings in Britain, the introduction of EPCs will create a bill of around £10.4 million. That is a serious burden to impose on genuinely small businesses. By abandoning these proposals, the Government would be acting in support of domestic tourism and helping to keep the cost of a holiday in the UK within the reach of those on lower incomes. The Government would be acting in support of small businesses and in support of reducing red tape and pointless regulations. The Government have done a lot right, but they are in danger of getting it wrong on holiday lettings. By introducing EPCs and treating the waste from a holiday let as commercial, the Government would be upping the costs on an important but vulnerable sector of the British tourism industry.

I would like to leave hon. Members thinking about a holiday let in my constituency—Bobbin cottage in Earby. Bobbin cottage is a small, beautiful cottage with only two bedrooms which is ideally situated for the nearby walking trails. What will the impact of these changes be on Bobbin cottage? What benefit will there be from additional refuse trucks pounding their way through the rural roads of Earby to dispose of the latest holidaymakers’ week’s worth of banana skins and used teabags? Will the holidaymakers read the EPC for Bobbin cottage and think, “Well, it would be a nice place to stay, but will the landlord be paying too much for the steamy hot bath that I’ll need to take after walking across Kelbrook moor?”

The reality is that these changes will not have a positive impact. They will make Bobbin cottage more expensive to run, which will be reflected in the cost of staying there and will make it harder for Britons to experience one of the most scenic parts of my constituency. For Bobbin cottage, domestic tourism and the tens of thousands of small business owners out there affected by these new regulations, I urge the Minister to reconsider.

[The Parliamentary Under-Secretary of State for Communities and Local Government (Andrew Stunell)]

I thank my hon. Friend the Member for Pendle (Andrew Stephenson) for bringing this issue to the House and the measured way in which he has made his case. As he rightly says, the matter covers two completely separate issues. Indeed, just to complicate my response, it covers two completely different Departments. I am speaking as a Minister from the Department for Communities and Local Government, so I will certainly ensure that his words about the controlled waste consultation reach the ears of DEFRA Ministers. However, I am sure he will understand that I am not in a position to give him too much of a glimmer of light in respect of that, although I would be very happy to ensure that he gets a response from my colleagues in DEFRA on the matter.

What I can do—and hope I will do—is set out the position on energy performance certificates. I am not at all surprised that my hon. Friend has reported confusion and concern. I have to tell him that that has been followed up by a lot of correspondence. So I have confusion, concern and correspondence to sort out in my role as Minister. The first thing to say is that the matter is not a pretty picture as far as the Department’s previous performance is concerned. As he said, the EU directive came into force in 2007 and it clearly applies to all buildings. Just for reference, about 6.4 million energy performance certificates have been issued to homes in this country, so we are not dealing with a trivial number of homes.

When the directive was first published and approved at a European level by the United Kingdom among others, it provided that countries could if they chose to do so put in place a derogation for holiday lets of less than 4 months. The first mistake is that that opportunity to take a derogation was not pursued by the United Kingdom. If it had been taken, the derogation would be there now and today’s debate would not be needed. However, as I say, that derogation was not taken.

To compound matters, unfortunately I have to tell my hon. Friend that, a year after that—in 2008—the Department issued guidance that, contrary to the position outlined in legal parlance, claimed all holiday lets were exempt. That was the exact opposite of the legal position then in force. During 2009, it came to light in reviewing the application of the regulations that that double mistake had been made. That led to a consultation last year and, in February 2011, the Government announced their intention to apply the EU directive—if I may put it this way—in an underogated state, starting in June this year. There has been a very unsatisfactory record of missed opportunities and mistaken advice on the matter and, understandably, a large number of hon. Members have been approached by constituents who are confused but, more to the point, concerned by what has happened.

Let me first set out some of the facts of the situation and the reason why the Government are now saying what they are saying. EPCs are required on the sale, rent or construction of a building, including any property that is rented out as a holiday let for a combined period of more than four months in any 12-month period. My hon. Friend challenged the interpretation that a holiday let was a tenancy. It is important to make clear to the Chamber that there is a definition that covers this in the Housing Act 1988. Perhaps that is unfortunate, from the point of view of my hon. Friend. It states:

“A tenancy the purpose of which is to confer on the tenant the right to occupy the dwelling-house for a holiday.”

In terms of interpretation, that is a crucial point. There is no doubt at all that, from the UK legal point of view, such a holiday let is a tenancy and is therefore caught by the EU directive.

My hon. Friend asked how landlords and owners would know whether their property was to be let for four months, or six weeks if it was a bad season. The directive is clear. The point is whether the owner intends to rent out for more than four months—the intention is the question that has to be decided. I bring that to the Chamber simply to report the facts of the case. I do not seek to rebut every point made by my hon. Friend.

[Andrew Stephenson]

On the difficulty of enforcing the regulations, will the Minister clarify how intention can be proved? If every owner in the country decided that it was their intention to let their properties for only 130 days a year and they happened to let for longer, would they fall foul of the regulations? Their intention would have been to let the property for less than 140 days.

[Andrew Stunell]

My hon. Friend asks a worthwhile question. I imagine that it would be quite difficult to achieve a burden of proof to prosecute somebody for underestimating their intentions. I understand that the Department is not aware of any prosecutions under the regulations. Compliance is self-driven, rather than driven by prosecutions.

My hon. Friend raised the issue of cost. Undeniably, there is a cost to having an EPC—probably in the range of £50 to £80, depending on the provider. My hon. Friend quoted the figure of £10 million. That figure is for the total cost over a 30-year period, so we need to keep the scale of the problem in perspective. If the EPCs led to owners improving the energy performance of the cottages and homes that they let, they would receive a payback of £15 million in that 30-year period. There is, therefore, a net benefit in the provision of EPCs and the implementation of the energy-saving results that they will reveal—as there is for EPCs for the 6 million-plus that have been issued to ordinary homes. I want to ensure that we have it clearly on the record that there is a first cost, but that there is a potential for saving, too. As my hon. Friend recognised, that also makes a contribution to reducing the United Kingdom’s carbon output.

I would like to correct one of my hon. Friend’s facts, and to explore one of the propositions that he brought forward. He said that England and Wales would be the only countries enforcing this. They are already required in Scotland and Northern Ireland, so, depending on what we define as a nation, other places in the UK require EPCs. I asked my officials whether there was evidence of non-conformity by other European countries. I have been told that, having made inquiries to the European Commission, they are not aware of any country that is not implementing the EU directive in the manner that we now propose should be the case in England.

My hon. Friend produced some information about what France had done, and referred to the fact that a provider of holiday lets in his constituency had evidence from a much wider field around Europe. I hope that he will accept, as a glimmer of light, that the very first thing I shall do after the debate is seek whatever validation we can for those two pieces of evidence. We do not want providers in England to be at a disadvantage to other European countries simply because we have taken too robust a view of how the directive should be interpreted.

My hon. Friend referred to the Local Government Regulation document. I think that he has slightly over-egged his case. It has produced advice that says that an EPC is not required. The Department has attempted to get in touch with Local Government Regulation, which is a subset of the Local Government Association, to challenge or examine how it came to that view. Unfortunately, the member of its staff who prepared that advice is no longer with the organisation and we are having difficulty establishing how its view was arrived at. It may, quite reasonably, have been based on the advice, issued by the Department in 2008, to the effect that all holiday homes were exempt, but that was clearly not correct and clearly contradicted by the reality that no derogation was entered into by the UK in 2007.

My hon. Friend has raised these matters at the highest levels in government, and has made it clear that he believes that there are unnecessary burdens that could be lifted by the Government. As he acknowledged, the Government have a very good record on this. Indeed, an important part of what my Department attempts to do is to bust barriers. Barrier busting is something on which we wax eloquent. If my hon. Friend has, as he believes, found two barriers that we can bust, I give him an assurance that we will see what we can do to achieve that. However, the UK Government must correctly interpret and comply with EU legislation. It is also extremely important to reduce the carbon output of the UK. Half the carbon output in the UK comes from buildings, and a quarter comes from homes. Tackling this sector is important. EPCs are an important part of what we need to do to set the climate, atmosphere and culture that will lead owners and occupiers to use their buildings in an energy-efficient way. I hope that he will accept my assurance that we are listening to the points that he has made. However, we have a duty to ensure that we not only comply with European legislation, but live up to our target to be the greenest Government ever and ensure that all kinds of householders play a full and active part in helping us to do so.