New proposals meaning rental properties will need to be even more energy efficient are currently going through Parliament, as Laura Noble from our residential property team explains.
Since 2008, it has been a legal requirement that all rental properties in England and Wales must hold an Energy Performance Certificate (EPC). This is a document that provides detailed information about the property’s energy efficiency and carbon dioxide emissions.
The EPC rating is measured from A to G with ‘A’ being the most efficient and ‘G’ being the least.
In 2018, Minimum Energy Efficient Standards (MEES) came into force which meant that all properties being let or sold in England and Wales, on the open market or privately, from that date had to have a minimum rating of ‘E’ or above.
In April 2020, MEES became retrospective and applied to all existing tenancies. If the property did not have an EPC rating of ‘E’ or above at this time, it could not legally be let.
New changes ahead
Following a consultation in December 2020, the Government announced further proposed changes to MEES in the Minimum Energy Performance of Buildings (No. 2) Bill which is currently going through Parliament.
These proposals take the minimum EPC rating to ‘C’ or above for all rental properties by 2025. The Bill proposes legislation meaning:
(a) all new tenancies must have an energy efficiency performance of at least EPC Band C from 31 December 2025; and
(b) all existing tenancies must be at least EPC Band C from 31 December 20, 2028, where practical, cost-effective, and affordable.
EPC’s last for ten years and when they expire there is no automatic requirement for a new one. A new EPC is only needed when triggered by an event such as the sale of the property or the granting of a new tenancy.
Landlords have a responsibility to make sure that their property has an EPC. Inspections are carried out by qualified assessors and take 30-40 minutes. Once the report has been received, it is the landlord’s responsibility to read through the recommendations for improving the property’s energy efficiency and ensure the current rating is ‘E’ or above. After 2025.
If the property rating falls below the current legal requirement, landlords may spend up to £3,500 making improvements, which can include funding or grants from the government, energy companies and local authorities.
If improvement works are likely to cost more than £3,500, landlords can apply for a high-cost exemption. It is estimated that the cost of improving energy efficiency ratings, especially in older properties, from an ‘E’ to a ‘C’ will be in the region of £4,700 so the cap of £3,500 will be increased to £10,000 when the changes in regulations come into force.
As the changes to the regulations form part of the government’s commitment to carbon net zero by 2050, it is possible that some form of financial support will be offered to landlords to help with the costs, but no announcements have been made yet.
Take action now
A recent survey suggested that almost a quarter of landlords said their properties currently have a rating of ‘D’ or below and they do not know what works are needed for the properties to meet the new minimum ‘C’ rating.
Landlords would not be able to let their properties from 2025 unless improvements are made and it is estimated they could lose up to £9,500 in rental payments every year, if they are not able to rent out their property.
To prepare for the change in regulations, the government suggests that landlords act now, so they know what work needs to be carried out, as well as the cost and timeframes. The government has recommended a ‘fabric first’ approach, for example, completing work such as loft insulation and cavity wall insulation.
Impact on tenants
New changes to EPC regulations could have an impact on tenants, as landlords may look to increase rents to recoup some of their expenses.
While tenants would benefit from reduced heating bills through more energy efficient properties, they may be hit with higher rental prices, at a time where rents are already high.
An EPC must be provided to the buyers of a property when it is being sold and to new tenants of a property being let. If a property does not have an EPC, it cannot be legally let and has a knock-on effect, with seeking possession of the property from the tenants at the end of their tenancy.
At present, if landlords are found to be letting a property without an EPC, they can face fines of up to £5,000. When the regulations change, as anticipated in 2025, the penalty for not having a valid EPC with a ‘C’ rating or above will be raised to £30,000.
Don’t lose out
While 2025 may seem a long time away, we would urge landlords to check the energy rating of their rental properties. If needed, start looking into improvement works so that when the regulations change as expected, they can continue letting their properties without any loss of income.