Introduced in 2007, an Energy Performance Certificate (EPC) rating is used in England and Wales to measure the energy efficiency of a property on a scale from A - G, with A being the most efficient, and G the least. Currently, to legally rent out a property, it must have an EPC rating of an E or above (excluding exempt properties). However, the government have plans to change the minimum energy-efficiency standards (MEES) to meet their net-carbon zero ambitions as part of their wider Warm Homes Plan.
Following a consultation in February, the government are planning to increase the MEES from the current E rating to a C, or equivalent, by 2030.
This proposal is expected to improve 52% of privately rented homes in England, whilst also saving tenants on average £240 per annum on their energy bills. There is an issue with fuel poverty in the PRS, effecting approximately 1.1 million properties. Improving the energy efficiency of these homes will ensure less heating is needed, therefore reducing energy bills.
What Landlord’s Need to Know
A phased timeline has been proposed meaning any newly rented properties would need to achieve the new rating of C or above by 2028, and any existing tenancies will be required to meet this higher standard by 2030.
The government have also unveiled plans to change the grading system of EPCs, likely to be introduced in 2026. It will be necessary for landlords to prioritise meeting a standard set against the fabric performance metric, which is likely to require similar improvement measures as meeting the current EPC C rating. Following this, the secondary standard landlords would need to meet would be set against either the heating system metric, or the smart readiness metric. Landlords would be given the power to decide which option is best for their property.
Under the current law the spending cap to make improvement measures is £3,500 per property, however the government is proposing increasing this to £15,000, meaning more extensive measures will need to be invested in to meet the necessary standards. This alongside a harsher penalty, increasing from the current £5,000 fine to £30,000 per breach, for non-compliance of the regulations.
It's predicted that the majority of properties will need between £6100 - £6800 worth of improvements to meet the new standard. However, the ability to apply for an exemption if the cost to improve the property is over the cost cap will still apply. The government is planning on reviewing the current list of exemptions, and whether new ones need to be introduced. They are also proposing doubling the exemption period from 5 years to 10 years before having to reapply.
The Potential Impact
This is causing many landlord-related groups and publications to call out for the amount landlords should be expected to contribute towards the improvements to be based on the average market rental price in any given area. For example, a landlord of a 3-bed house in London would typically receive £15,000 in rent, much more quickly than a landlord of a 3-bed house in a less affluent area. The London landlord could potentially earn £15,000 in rent in a few months, compared to the other landlord in this scenario, who it may take years to reach this amount. This one-size-fits all approach could end up with catastrophic results for landlords in many areas of the country.
If landlords are unwilling or unable to invest in the necessary upgrades, it will undoubtedly result in many landlords looking to sell their portfolio, leaving a smaller number of viable homes on the rental market, inevitably raising rental prices and leaving tenants in a worse position, competing for an even smaller number of properties.
It’s not all doom and gloom though, besides the obvious benefits to the planet, the upgraded MEES standards will ensure that eco-properties remain commercially viable in the long-term and will make them more appealing to renters in the short-term, meaning a potentially higher rent could be yielded.
What Landlord’s Should Do Right Now
- Get an updated EPC
Knowing the properties point score can inform landlords how far away they are from a potentially higher rating, meaning a lower amount of investment is needed. The EPC will also include recommended improvements to know where to start.
- Priorities low-cost improvements
Until there’s more clarity on the new EPC metric system, the smaller, more affordable improvements should be where landlord’s focus their attention. Low-cost improvements such as adding hot water cylinder insulation, switching to low-energy LED lighting, increasing the roof and cavity wall insulation, and upgrading to double glazing, can push a property into a higher EPC band without spending too much.
- Keep track and evidence of any improvements
Landlord’s need to keep detailed records of all upgrades made to the property, so that they can be acknowledged towards the spending cap.
- Renewable Energy Sources
Installing solar panels, a heat pump, or other renewable energy solutions are an easy way to improve the EPC score of a home. Although the initial outlay is a lot higher, the improvements can future-proof the home and make it much more attractive to tenants.
- Look into what Help is Available
Various government support initiatives are currently available to support energy efficiency improvements, and plans for a new ‘Warm Homes: Local Grant’ for private landlords is in the pipeline to be introduced this year.
- Seek out Professionals
Historically, the number of qualified persons that have been available when new lettings legislation has been passed has been lacking. For example, when the Electrical Safety Standards were introduced in 2020, there were not enough certified electricians to conduct the works before the deadline, consequentially leaving some landlords breaking the law by renting out their property without a valid electrical certificate. Landlords should have a professional lined up to do the required works and make sure they have room in their diary.
- Make a Contingency Plan
The countdown to the new MEES deadline has begun, so landlords need to assess their portfolio, seek professional advice, and create a plan to ensure they can afford the necessary upgrades within the given timeframe.
Make Compliance Easier with Aquarius Homes
These EPC regulation changes, along with the upcoming Renters’ Rights Bill means landlords are facing a lot of challenges in the near future. Here at Aquarius Homes, we understand the stress that landlords face and we are ready to help! Our team of ARLA trained agents can provide tailored advice and support to optimise your rental while meeting all upcoming legislation. Don’t wait until it’s too late, get in touch today so we can start to help you!
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