Energy Performance Certificates (EPCs) are now vital for most landlords – and the government is set to raise the bar by requiring higher EPC ratings. We explore the situation and what landlords can do about it.
Whether you’re a domestic or commercial landlord, you can’t afford to ignore the government’s ever-evolving energy efficiency laws. On a mission to cut the massive contribution that UK housing makes to CO2 emissions, the government proposes to raise the bar for the energy performance of rental properties. EPC for landlords are now a pretty standard requirement – but achieving the required rating is set to become more challenging.
From April 2018, the minimum energy efficiency standards (MEES) stated that unless they are exempt, all buildings rented under a new tenancy must have a minimum energy performance certificate (EPC) rating of E. From April 2020 MEES have applied to all tenancies, existing and new – and now further legal requirements changes are planned.
From April 2023 commercial buildings cannot be rented out if they have an EPC rating of below E, and commercial property landlords will face fines of up to £150,000 if they breach this rule. Meanwhile, The Minimum Energy Performance of Buildings Bill, which is currently progressing through parliament, will require all new tenancies in privately rented properties to have an energy efficiency performance of at least EPC Band C from 31 December 2025.
All existing tenancies will have to be at least EPC Band C from 31 December 2028, and all rented non-domestic buildings will have to be EPC Band B by 2030. The financial penalty for landlords who fail to achieve the targets is set to rise from £5000 to £30,000 from 2025.
Costs of EPC for landlords
With EPC for landlord requirements almost certain to rise, so will the cost of achieving the target EPC rating. The government currently has a £3,500 cost cap in place for any landlord investing in raising a property’s energy efficiency. If you spend up to the cost cap and still haven’t achieved the target property rating, you can apply for an exemption. With the new targets set for 2025, plans are to raise the spending cap to £10,000.
The government has estimated that on average it will cost a landlord £4,700 to bring a property up to a band C EPC rating, but it’s clear this figure will fluctuate a lot from one property to the next.
Many landlords, especially if they have several properties, will not have enough money set aside or readily available to make the required changes. With the threat of bigger fines looming, there are hopes that the government will bring in a successor to its Green Homes Grants, which covered everything from insulation and heating through to replacement windows and doors.
Other sources of third party funding listed by the government in its guidelines for landlords include local authority grants, Green Deal finance and Energy Company Obligation (ECO), a government energy efficiency scheme in Great Britain that places obligations of energy companies to instal energy-saving measures in homes.
Further hopes are focused on lending and the possibility that the government will incentivise lenders to offer green mortgages, retrofit loans and other financial solutions to help fund the necessary changes.
Is my property exempt?
A few types of property are exempt from EPC requirements:
- Temporary buildings with a planned use period of two years or less.
- Residential buildings that are intended to be used less than four months of the year or where the owner or landlord could reasonably expect the energy consumption of the building to be less than 25% of all year-round use.
- Buildings protected as part of a designated environment or because of their special architectural or historical merit, whose character would be altered by energy efficiency improvement work.
- Stand-alone buildings with a total useful floor area of less than 50m2 (i.e. buildings entirely detached from any other building).
A building is also exempt if you can demonstrate that:
- the building is suitable for demolition.
- the resulting site is suitable for redevelopment.
- all the relevant planning permissions, listed building consents and conservation area consents exist in relation to the demolition, and
- in relation to the redevelopment, either outline planning or planning permission exists and where relevant listed building consents exist.
There are several other ways a property can be exempt from MEES. It’s a bit complicated, but the government has laid it all out here for domestic landlords and here for non-domestic landlords. Grounds for exemption can include, among other things, having access refused by the tenant, and having already spent up to the landlord’s cost cap but finding that the property rating still falls short of the energy performance target.
How do I get an EPC?
EPCs can only be awarded by accredited assessors, so you’ll have to book for one to visit the property. This government page will help you. If you’ve got tenants in the property you’ll have to get their permission and give them 24 hours’ notice before the assessor visits – but most tenants will be happy enough to help because they understand it’s good for them and the environment.
Your EPC certificate will be valid for 10 years and once it’s expired, you only have to replace it once you decide to sell the property or embark on a new tenancy agreement.
What does the future hold?
Much has been written about the growing exodus of landlords from the rental market as the EPC rules bite – and it’s true that the costs related to fulfilling the new energy efficiency standards will be high for many. On another level, landlords, tenants and the environment stand to benefit from the situation. Tenants get warmer homes with lower bills; landlords upgrade their properties and contribute to their longevity, possibly benefitting from grants and favourable funding along the way, and the improved energy efficiency cuts greenhouse emissions and goes some way towards addressing our current climate crisis.
More needs to be hammered out in terms of what support and finance will be available to landlords; so far, there are plenty of sticks (in the form of rocketing fines) and not enough carrots.
It seems almost certain that The Minimum Energy Performance of Buildings Bill will be passed. The question that remains is how it will be implemented without worsening the UK’s housing crisis. One recourse available to landlords will be to raise rents to cover the costs of the improvements, and with demand for rental properties still high, this seems a feasible option – for the landlords at least, of not for the tenants.
The government’s EPC guidelines for landlords can be found here.
This article contains public sector information licensed under the Open Government Licence v3.0.