The Labour Government has confirmed that landlords will need to have at least a ‘C’ energy efficiency rating from 2030 via their EPC (Energy Performance Certificate). This comes less than a year on from when Rishi Sunak dropped this requirement, which was due to come into force in 2028 (having previously been delayed from 2025).
This hasn’t come as too great a shock to landlords though, as I noted last year when the policy was dropped. At that time the Labour party had already said they would reintroduce the policy if they came to power (which became ever more likely to happen as Sunak’s time at the top went on). Regardless of who was in power, it seemed to be a matter of when targets would be brought in rather than if. It is a shame though that the policy has come back in its original ‘one size fits all’ criteria, which seems overly simplistic for such a complex subject.
If you’re unfamiliar with EPC’s, they show a property’s energy efficiency on a scale from A (highest) to G (lowest). They are valid for ten years and you can easily look-up a property’s certificate online by visiting www.epcregister.com.
Whilst every rental property has needed an EPC since 2008, from April 2018 it became unlawful for new tenancies or tenancy renewals to proceed in a property with a rating lower than an E. From 1st April 2020, these rules expanded to ALL tenancies i.e. no property with an EPC rating below an E should currently be tenanted (although some exclusions apply). Those who fail to comply with these laws face significant financial penalties; from £5,000 all the way up to £150,000 for repeat, long-term offenders.
Updated lettings legislation also stipulates that if you don’t provide the EPC to your tenant before they let the property, you are unable to serve them with a Section 21 notice should you want to regain possession of the property.
It is therefore a good idea for landlords to check their property has a valid certificate in place with at least an E rating and that the tenants were given a copy before any tenancy agreement was signed after 2020. If you use a letting agent, be sure they are on top of this for you, as ultimately it is the landlord that faces the consequences (and fines) for not abiding by the legislation.
It should be noted that, legally, the EPC is only needed at the point of marketing and at the start (or any renewal of) the tenancy. So, if the EPC expires during the tenancy, it doesn’t technically need to be renewed straight away. This is something of a grey area though, as how can you prove the property satisfies the minimum rating if you don’t have an in-date certificate? Also, you need an in-date EPC to be able to serve notice to tenants, so it is wise to have one in place in case this becomes necessary.
Until they were dropped last year, most landlords had accepted that the more stringent energy efficiency rules were incoming, with some having already spent sizeable sums in preparation for the anticipated legislation. A study by Shawbrook Bank at the time suggested 80% of landlords were already prepared for the ‘C’ rating requirement.
Nevertheless, that same statistic means around 550,000 landlords weren’t prepared!
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Further worrying research that has been published estimates it would take until 2042 for all rental homes to become compliant with the new rules; some 12 years after the 2030 target. This is for several reasons; most notably the extensive works many properties would require to actually achieve a C rating, alongside a lack of qualified tradespeople able to undertake the works (whilst also supposedly building 370,000 new homes a year…). Critics of EPCs argue they are inaccurate and largely based on (flawed) assumptions anyway. They also appear non-sensical when certain upgrades (most notably energy efficient electric heaters being installed in place of old storage heaters) actually lower the perceived energy rating! Some ‘improvement’ works are also known to negatively affect the structure of a property and lead to damp; such as the fad of ‘insulating spray foam’ being used in lofts a few years ago, which is now being shown in the media as leading to condensation issues such that the properties affected have become unmortgageable and unsaleable without costly removal.
Most are also of the opinion that once the C rating is commonplace it will only be a matter of time before the goal posts are moved to a required ‘B’ and then an ‘A’ rating. Meanwhile, why is it only rented properties that need to meet the criteria, as opposed to all properties (both residential and commercial).
On the flip side, many landlords are responsible and environmentally conscious enough to realise there are benefits of improving energy efficiency without being forced to do so. Rising energy prices in the past couple of years has focused the minds of many tenants, such that they are now actually taking note of the EPC rating prior to choosing a property. Previously, so few people paid attention to the EPC that there was little value in improving the energy efficiency of the home, nor to then instruct and pay for another assessment to prove it.
Similarly, the value of a property should benefit from being more energy efficient; with 74% of those looking to purchase within the next two years advising that a home with an EPC rating of an A or B is more attractive than less energy efficient homes. There are also a growing number of ‘green’ mortgage deals, with incentives or improved terms reserved for those with the most energy efficient homes.
I suspect the reintroduction of the enforced energy efficiency proposals will now mean a swathe of properties being sold rather than let. This will be especially true of older properties and leasehold properties, whereby the required improvements are simply impossible to implement, or are far too costly to justify at a time when landlords’ margins have already been squeezed. I guess those properties will be sold to an owner-occupier who doesn’t need to meet the minimum requirements, whilst those in the rental market will face a further supply shortage and, inevitably, higher rents.
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Despite the challenges surrounding the Coronavirus, new regulations on energy efficiency still came into effect on 1st April, which could now make it unlawful to let your property. The Minimum Energy Efficiency Standards (MEES) have been known about for some time, so I hope this isn’t coming as a shock to landlords, but let’s take a closer look at what the latest changes mean.
