Do you know the EPC rating of your rental properties?
It’s certainly something you need to be aware of.
Over one million houses (21%) in the UK private rental sector are officially classed as ‘non-decent’ – often cold, damp and poorly insulated. And at present, only 49% of homes currently have an EPC (Energy Performance Certificate) rating of C or above.
With these statistics in mind, the government is about to implement change.
Soon, new EPC regulations will be introduced, meaning landlords will have no choice but to address the EPC ratings of their buy-to-let portfolio. Improvements will have to be made to ensure properties are properly insulated and as energy efficient as possible. Otherwise, they may face hefty financial penalties and potentially other consequences.
Here our property solicitors outline everything you need to know, including your legal responsibilities, and steps you could take now to prepare.
A transition to EPC Band C by 2030
Private rented homes in the UK currently only have to meet the low EPC Band E.
The previous government initially planned to increase the minimum EPC rating in rental properties from E to C, by no later than 2028. But in September 2023, the proposed changes were scrapped by former prime minister, Rishi Sunak.
Fast forward to October 2024. Now, over a year later – and with a new government in power – it seems the changes may be back on the agenda. As part of their ‘Warm Homes Plan’ and commitment to reducing the number of fuel-poor households, the Labour Party have recently confirmed they are bringing back plans to implement new landlord EPC requirements.
The full details have yet to be revealed. However, the original deadline of 2028 has now been pushed back to 2030. By which point, all rental properties – including new and existing tenancies – will need to have an energy efficiency performance of at least EPC Band C.
To continue to rent a property, landlords will need to make any necessary upgrades – such as installing insulation and eco-friendly devices (e.g. heat pumps, solar panels etc.) – to reach the EPC Band C threshold. And if they don’t, they may face a hefty financial penalty.
What impact will the new energy efficiency rules have?
The new 2030 deadline offers some clarity and direction for private landlords. Something that has certainly been lacking since Rishi Sunak scrapped the changes in 2023. But it could be seen as good and bad news, for both landlords and tenants.
- Cost
Enhancing the energy efficiency of properties certainly won’t be cheap.
To meet the target, it’s estimated that each year around 340,000 rental homes will need to make improvements to achieve a minimum EPC rating of C. And at an average cost of £8000+ per property, landlords face spending an eye-watering £21.5 billion on retrofits.
Landlords looking at the new EPC requirements are likely to be weighing up whether the cost to improve their property’s EPC rating is worth it – or if selling the problematic property before 2030 is actually a better, more financially savvy, option.
It’s easy to understand why some might simply walk away from the sector.
Demand for affordable lets is already an issue in the UK. In the last 12 months, the number of homes available for rent has risen slightly – yet there are still 25% less compared to 2019. A potential exodus of landlords could send the numbers in the opposite direction once more, resulting in an even smaller rental market, less choice for tenants and, ultimately, higher rental prices
To help prevent this, it’s believed the government will encourage mortgage lenders to offer affordable finance for landlords who need to carry out ‘green’ improvements.
Some landlords will be given cash to fund the cost of upgrading one property, capped at between £15,000 and £30,000 (depending on the kind of upgrades required). But this will be limited to properties located in certain eligible postcodes, and those which contain tenants who receive benefits or have incomes that fall below a certain level.
- Lower energy bills
Currently, over a quarter of renting households in the UK live in fuel poverty.
The proposed EPC regulations should help to address this shocking statistic. After all, energy efficiency is one of the best ways to bring energy bills down. By improving insulation and heating in their privately rented properties, landlords will allow their tenants to heat their homes for less.
In fact, the new EPC standards could save renters approximately £499 a year – compared to a tenant living in an average property with an EPC ‘D’ rating. The difference is even bigger between typical properties with EPC ‘C’ and EPC ‘E’ ratings, with an estimated annual saving of £1,248.
Interestingly, lower energy bills could also be of benefit to landlords.
As the rising cost of living remains a concern, demand for properties with higher EPC ratings could increase. So whilst energy efficiency improvements may be a big initial outlay for landlords, the cost could be offset by higher average rents and shorter void periods.
- Eco-conscious renters
More and more people want to do their bit for the planet.
When choosing somewhere to live, the energy efficiency of the property is now deemed just as important as the size of the property and its location.
Decarbonised homes offer an opportunity for tenants to address the climate crisis on a personal level – allowing them to reduce their carbon footprint, whilst saving money in the process. Therefore, in time, this could also increase demand for properties with a better EPC rating.
Will there be changes to EPC regulations for commercial properties?
In addition to the changes for residential properties, the current government has also published their proposed plans for future EPC reforms in the commercial sector.
Since 2023, a minimum EPC rating of ‘E’ has been required – both when a landlord grants a new lease and for the continuation of an existing lease. However, if the latest proposals are adopted, from the 1st April 2027, all commercial properties will require a minimum EPC rating of ‘C’– otherwise they will be unable to be let.
Further to this, by 2030, a minimum EPC rating of ‘B’ will be required.
Some properties will qualify for an exemption and there are certain conditions under which the new rules don’t apply. But generally speaking, if the building:
- is a roofed and walled construction (within which energy is used to control the indoor climate)
- has a valid EPC (commissioned in the last 10 years)
- is or will be subject to lease
Landlords will be legally required to comply with the new regulations.
If they don’t, the penalty for non-compliance is a fine (applicable per breach), based on 10-20% of the rateable value of the property – with a minimum fine of £5000 and a maximum of up to £150,000. The landlord may also be published on a public register, with details of the breach.
What happens next?
Whilst these changes to EPC legislation have now been confirmed, the government will need to provide further details on how the new rules will work. For example:
How will properties be assessed?
Is there a spending cap for improvements?
How will exemptions be registered?
Will any extra funding or support be available?
In the meantime, there are a few things both existing and prospective landlords can do to prepare for the upcoming changes:
- Review your property portfolio
Landlords need to ensure they have a valid EPC for each applicable property, issued by an accredited assessor. You can look this up online, and find out your property’s current EPC rating at https://www.gov.uk/find-energy-certificate.
- Speak to an assessor now
This will give you a better idea of what work needs to be done, to maintain or increase your property’s EPC rating, and how much it’s likely to cost.
- Check your leases
Do you have the right to enter the property and carry out the work? Could the cost (in whole, or in part) be passed down to the tenants? Now is the perfect time to review any leases and update them as necessary to reflect the new rules.
It may also be worth including new provisions which facilitate any improvement works and restrict a tenant from obtaining their own EPC, or completing any alterations that may adversely affect the current EPC rating of the property.
- Futureproof your portfolio
Ensure any new leases are drafted with the new EPC rules in mind.
Here at St Helens Law, we have a fantastic team of property solicitors, who specialise in this field and are always happy to help. If you’re still unsure what the new energy efficiency rules mean and how they’ll affect your property portfolio, or are wondering what to do next, please don’t hesitate to book a free initial consultation.
Whether you’re a landlord in the residential or commercial property sector, we can help you get to grips with your legal responsibilities, and advise on the best steps to take to prepare and ensure your properties meet legal requirements by 2030.
To discuss your situation in confidence, you can give us a call on 01744 742360. Alternatively, send an email to commercialconveyancing@sthelenslaw.co.uk or fill out the request form at the top of this page and we’ll respond as soon as possible.