Energy Performance Certificates (EPCs) are vital for promoting and improving energy efficiency within the UK PRS market.
UK landlords are legally responsible for ensuring that their rental properties have a valid EPC and meet the Minimum Energy Efficiency Standards. This can pose a challenge for landlords to maintain compliance amidst shifting standards.
What is an Energy Performance Certificate (EPC)?
An Energy Performance Certificate (EPC) is a document that rates a property’s energy efficiency using an A-G grading scale where A is the most efficient and G the least. By providing a clear snapshot of a property’s energy consumption and carbon footprint, EPCs play a pivotal role in promoting energy conservation in the rental market. EPCs were first introduced in England and Wales in 2008 and have since become a nationwide cornerstone of energy conservation initiatives.
Obtaining an EPC is a straightforward process. Landlords must book an appointment with a government-approved, accredited assessor. The assessor will then come and evaluate the energy efficiency of the property. The assessed elements include the property’s construction, insulation, heating systems, and windows.
The resulting EPC contains the following information about the property:
- Energy efficiency rating.
- Estimated energy costs.
- Recommendations for improvement.
- Potential energy efficiency rating if improvements are made.
EPCs are valid for ten years, after which time landlords must have the property reassessed. This ensures that the energy performance information remains up-to-date and reflects any changes made to the property.
What is the Importance of EPCs?
The importance of Energy Performance Certificates comes into sharp focus when we look at the UK’s domestic carbon emissions. The Office for National Statistics (ONS) reveals that 26% of total emissions in the UK are attributable to households. This highlights the importance of reducing the rental market’s carbon footprint, a task in which EPCs play a crucial role.
In line with global climate goals, the UK government has set an ambitious target to achieve net-zero greenhouse gases by 2050. This target relies heavily on our ability to reduce domestic carbon emissions.
In response to this challenge, the government has proposed stricter EPC regulations that will come into effect by 2025 for new tenancies and 2028 for existing tenancies. These new measures will create a more sustainable and environmentally friendly future for the UK’s housing sector, including the rental market.
EPCs play a significant role in shaping the UK’s efforts to create a more sustainable future by creating awareness and promoting energy efficiency.
What are the Current EPC Requirements for Landlords?
The government introduced the Minimum Energy Efficiency Standards (MEES) to improve energy efficiency in privately rented houses and buildings.
Since April 2020, the Minimum Energy Efficiency Standards (MEES) for domestic properties have prohibited landlords from renting out properties with an EPC rating below E (unless they have an exemption, more on these later.)
Landlords with properties assigned an EPC rating of F or G must take action to improve the property’s energy efficiency to a grade E or above before entering into a new tenancy agreement.
Non-compliance with MEES and EPC regulations can result in substantial penalties. Landlords that fail to comply could face fines of up to £5,000.
How are EPC Regulations Changing?
In December 2020, the same year that the existing MEES were implemented, the government announced plans to further enhance energy efficiency requirements for privately rented homes. According to the government document “Improving the Energy Performance of Privately Rented Homes in England and Wales,” a significant change is on the horizon for landlords.
According to this document, in 2025, the MEES for residential properties will be raised from the current minimum EPC rating of E to a minimum rating of C for all new tenancies. This new minimum EPC rating will be extended to all continuing tenancies from 2028 onwards.
With these new rules comes stricter enforcement. The penalties for non-compliance will significantly increase. By 2028, landlords failing to meet the new EPC requirements could face fines of up to £30,000.
How can Landlords Prepare for the New EPC Regulations?
Whilst 2025 and 2028 may seem distant now, the timeline for the proposed changes to the EPC regulations is not as far off as it may appear.
According to specialist property lending experts Octane Capital, more than two-thirds of privately rented properties in England and Wales are currently rated below an EPC grade C. Rather than putting off addressing energy efficiency concerns or problems, landlords should begin preparations and start improving their properties’ energy efficiency sooner rather than later.
For properties currently achieving the minimum EPC grade of E, upgrading to a C will likely require significant work and investment. Government estimates suggest that the improvements required to get a property up to an EPC C grade will cost landlords around £4,700.
Landlords should start by referring to their property’s existing EPC, which includes recommendations for improving its energy efficiency. They can begin planning and budgeting for the necessary upgrades using this information.
For landlords who believe their property may be exempt from the MEES, it’s essential to register an exemption as soon as possible.
Are There any Exemptions From EPC Regulations?
In some cases, landlords can be exempt from the MEES regulations if they believe that their property cannot be improved to meet the minimum rating.
It is free for landlords to register for an exemption. When doing so, they must provide proof of their reason for exemption.
Types of exemption include:
- High-cost exemption
- 7-year payback exemption
- All improvements made exemption
- Wall insulation exemption
- Consent exemption
- Devaluation exemption
- New landlord exemption
Under the current regulations, some properties may be exempt from EPC regulations if the cost to upgrade the property to meet the requirements exceeds £3,500. However, it’s important to note that this figure is set to change in 2025. From 2025 onwards the cap of £3,500 will be raised to £10,000.
You can find more information about the different exemption criteria on the government website.
How Will the Changes to MEES and EPC Regulations Affect the Rental Market?
The proposed changes to the Minimum Energy Efficiency Standards (MEES) could profoundly affect the rental market, primarily by enforcing higher standards on landlords and potentially exacerbating the existing shortage of rental properties.
The new regulations represent a bold stride by the government towards higher energy efficiency standards within the rental sector. Many landlords will be required to significantly upgrade their rental properties to improve their energy efficiency rating. This could lead to a more sustainable rental market characterised by properties with better insulation, highly efficient heating systems, and, consequently, a lower carbon footprint.
Implementing the improvements required to bring a rental property in line with new Minimum Energy Efficiency Standards will help landlords to provide more desirable and energy-efficient homes to their tenants. This will benefit landlords by improving tenant satisfaction and potentially enhancing the property’s value.
The enforcement of higher energy efficiency standards also promises considerable advantages for tenants, including a healthier living environment, greater comfort, and the potential for reduced energy bills.
What are the Downsides to MEES Regulations?
There are also potential downsides to the proposed changes. One significant concern is that the new MEES could exacerbate the UK’s current shortage of rental properties.
The changes to EPC regulations could inflate the value of properties with high energy efficiency ratings whilst simultaneously depreciating those with lower ratings. The high costs associated with buying an energy-efficient property or upgrading a property with a low rating could deter potential landlords from entering the market.
Furthermore, many existing landlords could face significant costs to upgrade their properties to meet the new standards, particularly if they own an older property. Consequently, there is a risk that many of these landlords may opt to sell their properties rather than shoulder the cost of implementing substantial upgrades.
Another potential concern is the likelihood of some landlords passing these costs to their tenants through increased rents.
As we’ve seen, whilst the forthcoming changes to MEES are a positive step towards a more sustainable rental market, they also present potential challenges that landlords must navigate carefully.
Landlords will benefit from proactive planning and preparation in anticipation of the new EPC regulations. Starting to plan well before the deadline not only ensures compliance but will also mitigate potential financial burdens that could be incurred by carrying out last-minute upgrades.