Heat and Buildings Strategy – EPC Changes for Rented Buildings

After many delays and false starts, the government finally set out its plan to decarbonise our homes and buildings this October and meet its commitments to Net Zero 2050.

The plan takes the form of the Heat and Buildings Strategy and aims to provide a clear direction of travel towards decarbonising the 30 million buildings we have here in the UK that contribute to almost a quarter of all UK emissions.

It is also hoped that this strategy will help to reduce energy bills, support up to 240,000 skilled green jobs by 2035 and boost our post-COVID economic recovery in a sustainable way.

EPCs – Energy Performance Certificates

 

As the main measurement of an existing building’s energy efficiency, Energy Performance Certificates play a central role with changes to required EPC ratings for rented properties, both domestic and commercial, being a key part of the strategy.

Here we outline what to expect by way of EPC rating requirements as we move towards Net Zero 2050.

With opportunities to upgrade and maintain rented properties often limited with sitting tenants, it’s worth taking stock as soon as possible of your property portfolio’s current EPC ratings and planning now for the inevitable changes ahead.

EPCs for the Domestic Private Rented Sector

Since 1st April 2018, all private rented properties have required an energy efficiency rating of at least an E on their EPC, to meet the minimum standards. This initially only applied upon the granting of a new tenancy to a new or existing tenant but on 1^st April 2020, this was extended to all let property.

From 1st April 2025, the intention is to raise the minimum EPC rating from E to C.

Landlords are required to take action to avoid any non-compliance penalties (estimated at £5,000) and protect the value of their assets. If a property does not meet the minimum standards, it will be deemed unlawful for landlords to let or market their property.

Whilst the above only currently applies to the Domestic Private Rented Sector, ministers hope that by 2035 these requirements will apply to all residential property, including owner-occupied homes, which is by far the largest proportion of UK housing stock.

EPCs for the Non – Domestic Private Rented Sector

From 1st May 2018, it was unlawful to grant a new lease for a non-domestic property with an EPC rating below an E.

From 1st April 2023, the above is extended to ALL non-domestic let property, not just new lettings, even if there is no change in tenancy. It will be an offence to continue to let a property with an EPC rating below an E.

The intention is to raise the minimum EPC rating from E to C from 1^st April 2027 and then by 2030 to raise this further to a B.

Enforcement

A phased implementation is indicated by the latest MEES consultation with a proposed interim EPC target of C rating by 2027 and B rating by 2030. The idea behind this is to encourage landlords to act prior to the 2030 deadline and allow landlords some flexibility in improvements when considering changes of tenants.

It is suggested that each milestone date will have a compliance window of 2 years, prior to the compliance date.

Compliance window 1 – 1st April 2025 – 31st March 2027

Compliance window 2 – 1st April 2028 – 31st March 2030

During these timeframes, landlords will be required to ensure a valid EPC for the property is available and that the required EPC rating is met. At the end of the relevant period, a new EPC will be required to evidence that the building now meets the forthcoming EPC requirement. Alternatively, an exemption will need to have been registered (see more below) and the highest rating possible for that building have been achieved.

Landlords will not have to carry this out in two stages, they are perfectly at liberty to meet the 2030 requirements of a B rating prior to the first compliance window date.

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Exemptions

Feedback on the following was sought in the MEES consultation:

• 7 Year payback period – landlords are not required to carry out improvement works if the cost of the changes required to meet the MEES threshold is not recoverable within a seven-year ‘payback’ period. The consultation confirms that the government is not proposing to change the length of the payback period, but it is looking to simplify the process of working out the payback. It will do this by replacing the current requirement to obtain three quotes as evidence with a simpler payback calculator

• Listed and older buildings – greater clarity is required around the treatment of older buildings and in particular listed buildings. The consultation proposes that all let buildings, including listed buildings, should be required to have an EPC. Landlords will, however, be able to apply for an exemption from the MEES thresholds where those cannot be reached. For example, because modern construction techniques are inappropriate to the age of the building, or the works required to meet the relevant EPC threshold would not be acceptable to the planning authority. A separate review is being undertaken by the government to make recommendations better suited to older properties by the end of 2021.

• Shell and Core building – predominantly in the retail sector, and to some extent the office sector, landlords have highlighted the issue of carrying out EPC improvements works prior to a new let to ensure the building meets the minimum EPC rating requirement, only for all the improvement works to be ripped out by the incoming tenant during the tenant fit-out. The consultation will attempt to address this issue with a possible 6-month grace period for shell and core buildings.

Central Exemption Register

It is proposed a new central exemption register will be implemented to allow landlords, or their representatives, to register exemptions. This will be known as the PRS Exemptions and Compliance Database.

Penalties

Buildings that are not MEES compliant by the relevant deadlines will face fines of up to a maximum of £150,00 for major breaches and £5,000 for minor breaches.

It must be noted that the £5,000 fine applies for each breach, however. For example, if the first and second deadlines are missed, a total fine of £10,00 will be applied. Publication of these breaches is also very likely to help highlight the issues to the public.

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Landlord vs Tenant Responsibility

Currently, the responsibility for EPC compliance falls to the landlord, not the tenant. Changes are proposed to encourage more collaboration, but no further detail is currently available.

Large Industrial and Commercial Buildings

Earlier this year the government also sought feedback on proposals to introduce a national performance-based policy framework for rating the energy and carbon performance of commercial and industrial buildings above 1,000m² in England and Wales, with annual ratings and mandatory disclosure as the first step.

The outcome of this consultation is yet to be published, but it suggests the government are exploring the possibility of taxing large buildings and their actual energy use.

Conclusion

The changes in EPC requirements are significant and, in most cases, will require a substantial investment on the part of the landlord to achieve the higher ratings.

Whilst the deadlines outlined above may seem a way off yet, upgrading rented properties, both domestic and commercial, is particularly tricky as tenants do not want the disruption of maintenance work and changes of tenancies are often few and far between.

With this in mind, we recommend taking stock of your existing buildings and their current EPC ratings as soon as possible to understand your starting point and think ahead to future renewals or known tenancy changes to ensure that opportunities to get the required work done in a timely and cost-effective way are seized and penalties avoided.

Energy Report will be sharing updates and recommendations as more information becomes available, so subscribe to our email updates and follow us on LinkedIn. Should you need any further advice or support in the meantime, please do get in touch.  You can call us on 01489 883231 or email us at info@energyreport.co.uk.