Are landlords required to improve the energy efficiency of their buildings?
In most places, there are no direct legal requirements to increase energy efficiency for buildings you own. The main incentive to make improvements to rental properties is to increase your marketability to tenants, potential buyers, or realize the long-term cost savings. When rental properties have common areas, landlords generally cover the costs associated with lighting and heating those areas. Simple efficiency upgrades in these areas, like replacing old lights with LED fixtures, can lead to cost savings over time.
In many places, when you replace appliances or renovate, you may need to meet certain energy-efficiency standards. Depending on where your property is located, you may need to document energy consumption, or meet other requirements. For example, San Francisco requires multifamily buildings that are at least 50,000 square feet to track energy usage. Berkeley requires building owners to upgrade to current energy standards if they do at least $50,000 in renovations. Los Angeles requires all building owners to make decarbonization upgrades, such as adding insulation, replacing windows and adding solar panels. In Los Angeles, however, rent-controlled buildings may increase rent up to an additional 10% to offset these costs. These city requirements are in addition to other strict California requirements.
Regular maintenance can also improve a property's energy-efficiency, and may be legally required at times. For example, windows and doors need to be regularly inspected for drafts. Also, cooling and heating systems need periodic inspections and the air filter replaced regularly. These are often easy and cheap maintenance items to keep up on, and lead to big efficiency benefits.
When should landlords upgrade rental properties?
The most logical time to make upgrades is when you are doing major renovations or replacing old or broken appliances. Rental property owners will typically do some renovation after a tenant moves out. After all, updated appliances and finishes can help attract new tenants and command higher rental rates. It can also be tricky to renovate when a tenant is present.
Keep in mind that when you renovate or do major work on your properties, you may be required to meet current building codes, including current energy-efficiency requirements. Fortunately, these days, all new appliances are likely to meet current energy-efficiency standards. This is because there are federal standards that appliance manufacturers must follow.
What easy energy-efficiency improvements can I make to save money and help the environment?
If you want to make your rental property more energy efficient, you do not have to do a full renovation. In fact, sometimes the smallest upgrades get you the biggest bang for your buck.
Here are some easy improvements to get you started:
- Replace the weatherstripping and seal any gaps in your windows and doors. This keeps the air-conditioned air inside and the outside hot or cold air from getting in. It can also help with pest control, as it closes gaps that bugs can crawl through.
- Choose a new, energy-efficient model when it is time to replace your appliances. Even if your tenant pays the utility bills, efficient appliances are a good selling point and good for the environment. Also, low utility bills can help a tenant decide to stay longer.
- Consider installing smart technology to help your tenant more efficiently use their heating and cooling system, lights, and other features in their rental home. In addition to lowering their energy usage, this is another nice perk you can advertise.
- Add insulation in your attic or walls. This can help keep the inside temperature more stable and reduce the time the air conditioner and furnace need to run. Not all properties are well-insulated. It may be easy to add another layer of insulation with little to no construction work needed.
- Make furnace and air conditioner filter changes a regular habit. Either drop off new filters or change them yourself as part of an inspection. Dirty filters directly reduce the efficiency of your heating and cooling systems by reducing the amount of air that can pass through them.
- Use timers or motion sensors for lights in common areas. This will reduce electricity usage, as you will not need to rely on tenants remembering to turn lights off.
Consider asking your property manager to perform smaller repairs and handle minor maintenance issues as part of the Property Manager Agreement. You may also want to encourage your tenants to fill out a Tenant Repair Request if they notice efficiency issues.
Are there rebate programs for making efficiency improvements?
It is likely that there are rebate programs in your area. Programs may be offered through your state or local government, local power companies, or regional groups formed to promote energy efficiency.
The best way to start is to see if you can get a free energy audit in your area. An inspector from the power company or a local agency will come to your property to help identify ways you can save energy. They may also inform you about rebate programs you might qualify for. Before an energy audit, remember to give your tenants ample warning and do not forget to provide them with a Notice to Enter.
Rebates are typically limited to less common or more expensive options than you might normally select. For example, there are often tax credits and rebates for installing solar panels to offset the high initial cost. For appliances, you generally need to choose an ENERGY STAR® certified model. ENERGY STAR is a federal program that identifies appliances that exceed minimum efficiency standards.
What tax incentives are available for improving energy efficiency?
Tax incentives for improving energy efficiency usually come in the form of tax credits and deductions. State and local governments may also offer property tax deductions. Keep in mind that improvements to your rental property are also generally deductible on your tax return, either immediately or through depreciation, like other business expenses.
Like rebates, tax incentives are targeted to specific energy initiatives, such as solar power or geothermal heating. Also, you should be aware that some tax incentives are only available to homeowners for their personal residence.
One of the ways you can check for the incentive programs and qualifications in your area is by using the Database of State Incentives for Renewables & Efficiency®.
Can landlords charge more rent if they make energy-efficiency improvements?
Making energy-efficiency improvements can make your property more attractive to tenants and increase the amount of rent you can charge. Keep in mind that you can generally only increase the rent for a new lease, unless allowed by your existing Lease Agreement. It is also good practice to send a Rent Increase Letter and get the tenant to sign that they received it.
If you are considering making a major improvement that will directly benefit your current tenant, it is sometimes possible to negotiate a Lease Amendment to increase the rent when the improvement is finished. If the tenant does not agree to the increase, you may not be able to raise the rent during their current lease term, even if you go ahead with the improvement.
Some areas have rent control laws that limit rent increases. Depending on where you live, the limit on an annual rent increase may be higher if you make upgrades such as energy-efficiency improvements.
To learn more about your legal obligations, or how to handle upgrades if you have an existing tenant, reach out to a Rocket Lawyer On Call® attorney for affordable legal advice.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.