The government has committed that from 2025, all new rental properties will be required to have an EPC rating of C or above. Alex Walmsley, assoicate solicitor in our property litigation team at Harrison Drury provides an overview of EPCs and what landlords need to do to comply with the new requirements.
What is an EPC?
Energy Performance Certificates (EPCs) are a measure of the energy performance of buildings in the residential, commercial, and public sectors. The EPC provides detailed information about the property’s energy efficiency and carbon dioxide emissions and are a key tool in promoting energy performance improvements in buildings.
Since their introduction in 2007, EPCs have been required when a property is constructed or offered for sale or let. The purpose of an EPC is to indicate the energy performance efficiency of the property to prospective tenants or buyers.
What are the changes for EPCs?
From 2025, all newly rented properties will be required to have an EPC rating of C or above – the Minimum Energy Efficiency Standards (MEES). Current guidelines only require an EPC rating of E or above. Existing landlords will have until 2028 to comply with these new rule changes, and current statistics indicate only around 15 per cent of landlords know about the proposed changes.
Implications for landlords
There is a now a concern that landlords will not be able to carry out the changes in time, and properties may subsequently be declared as unrentable. Landlords may not even know about the changes as the government is yet to make any announcement on its proposals.
Problems that landlords may encounter are:
- Empty properties could potentially not be able to let.
- Tenants coming to an end of a lease may demand improvements when it comes to renewal.
- An administrative overload and increased costs in dealing with tenant applications for new leases.
- Uncertainty in the market for rental values.
- Disruption to clients’ businesses as improvements are carried out, including rent being suspended.
- Financing and refinancing issues.
There are some positives, as carrying out the improvements will be beneficial to landlords by promoting a greener image and including green lease obligations to become the landlord of choice. In return, there is potential for more secure tenants and the collection of better rent.
Exemptions to meet new EPC regulations
Luckily, some landlords with escape the new regulations. For example, properties already have an EPC rating of E or better and the landlord believes that the property cannot be improved to meet the new standard as the cost is too high, or where the tenant has refused consent within the last five years for the landlord to improve the property, or where third-party consent has been refused, the landlord is exempt. These exemptions are tricky and this is not an exhaustive list, and advice should be sought before registering an exemption.
Landlords must register the exemption on the Property Redress Scheme register (PRS) if they wish to rely on these exemptions, and the exemption is then valid for five years. Currently, landlords must have been a landlord for at least six months before the regulations come into force.
What should landlords do now?
Landlords should take independent advice sooner rather than later, so they are not burdened with a costly mad rush to comply with requirements. Landlords should carry out the necessary improvements promptly and identify low cost and low disruption strategies for improving the rental property’s rating.
Where leases are coming to an end, advice should be sought in relation to providing compliant EPCs in time. These should be taken into consideration before serving relevant notices to renew tenancies. When negotiating terms of leases, landlords should now begin to consider inserting obligations where the owner/occupier undertake specific responsibilities and obligations in relation to the sustainable operation of a property – a green lease.
What are the consequences if a landlord ignores the new regulations?
By 2023, regardless of whether the property is leased or not, the property will be subject to the regulations and a landlord can be fined up to £150,000 if they do not comply. The amount of the fine is linked to the business rates payable.
The guidelines also provide for other enforcement measures including the serving of a Compliance Notice asking for documents to be provided.
Are there implications for tenants?
Yes, as landlords begin to consider how to fund the improvements, some tenants may see rent rise as landlords contemplate passing on the cost of improving the properties’ energy ratings directly onto their tenants. However, this will of course depend on how leases are drafted. As properties will more likely have a range of energy efficient features as standard, rents may naturally increase.
Summary of the proposals
- Domestic properties
- Raise the minimum EPC rating to C by April 1, 2025 for new tenancies and by April 1, 2028 for existing tenancies, along with other rules such as introducing a requirement for letting agents and online property platforms to only advertise compliant properties.
- Non-domestic properties:
- First compliance window – April 1, 2025, to April 1, 2027 – band C to be achieved by end of this window.
- Second compliance window – April 1, 2028, to April 1, 2030 – band B to be achieved by end of this window.
- Full compliance required by April 1, 2030.
Landlords may also be obliged to provide a valid and compliant EPC certification prior to a property being placed on the market. Tenants can also request that landlords they believe are non-complaint to carry out improvements and give tenants a right to redress.
It is important to be prepared for these changes. If you are a landlord seeking advice on how to comply or a tenant wanting to ensure that your landlord meets the new ratings please contact Harrison Drury’s property litigation team on 01772 258321