EPC shake-up offers landlords respite, but more uncertainty

Prime minister Rishi Sunak has scrapped plans to enforce tougher minimum Energy Performance Certificate (EPC) ratings in England, arguing that the costs involved are too much at a time when many people are facing financial difficulties.

In 2015, the government introduced the Minimum Energy Efficiency Standards (MEES), which required private rented property in England and Wales to have an EPC rating of E or above. These standards came into force on 1 April 2018 for new tenancies and on 1 April 2020 for existing tenancies.

There is a maximum cost cap for complying with the standards. Landlords cannot be required to pay more than £3,500 per property, including VAT and outside any funding, such as grants. If the property still does not meet the minimum EPC rating after spending this amount on improvements, landlords can register an exemption.

Proposed changes

In 2020, the government began a consultation on tightening the MEES rules. The proposed changes were:

• the minimum EPC rating to be raised from E to C by 1 April 2025 for new tenancies and from 1 April 2028 for existing tenancies.
• the cost cap to be raised from £3,500 to £10,000 per property.
• a ‘fabric first’ policy to be introduced, controlling the order in which work is carried out. Improvements to the fabric of the building (i.e. insulation, windows and doors) would be done before additional measures, such as new heating systems, are installed.

In anticipation of these MEES changes and to spread the cost of making the necessary upgrades, many landlords have already improved the energy efficiency of their properties at great expense. Some landlords even took drastic steps of selling their properties because it was financially or practically impossible to make the necessary improvements.

Latest announcement

In a speech on taking a new approach to net zero on September 20, 2023, Rishi Sunak announced he was scrapping the proposed changes to the MEES rules meaning there is no deadline to upgrade properties but still encouraging landlords to consider energy efficiency measures.

All rental properties will continue to need to have an EPC of at least E to be let, unless they are exempt.

The government will continue to subsidise energy efficiency measures and under revised plans will:

• Raise the Boiler Upgrade Grant by 50% to £7,500 to help households who want to replace their gas boilers with a low-carbon alternative like a heat pump.
• Delay the ban on installing oil and LPG boilers, and new coal heating, for off-gas-grid homes to 2035, instead of phasing them out from 2026.
• Set an exemption to the phase-out of fossil fuel boilers, including gas, in 2035 so that households who will most struggle to switch to heat pumps or other low-carbon alternatives won’t have to do so.

Conclusion

The proposal to raise the minimum EPC rating from an E to a C has certainly been a concern for owners of rural property. Shortcomings in the methodology that sits behind EPCs means that this can be difficult to achieve in rural properties, with some measures being either impossible to implement or inappropriate. However, many landlords are keen to maximise energy efficiency across their portfolio and will continue to make improvements.

Landlords should be aware that we still don’t have all the details of how this announcement fits with finance rules on net zero (i.e. will it be possible to get finance on energy inefficient properties), the approach of the devolved governments and targets for low income housing. It is possible the next general election may result in the winning party reintroducing new EPC rules. So, although the government’s announcement provides respite for landlords, it brings further uncertainty into a property market that would benefit from greater stability.

There are also arguments it represents a transfer of responsibility from landlords to tenants, which brings reputational implications. Research published by climate change think tank E3G in January 2023 found the new energy efficiency standards would save renters an average of £570 per year, leading to aggregate annual savings of £1.75bn.