What is an EPC?

An Energy Performance Certificate (EPC) provides detailed information on a property’s carbon dioxide emissions and energy efficiency. The EPC assessment takes account of the following features in properties:

● Lighting

● Windows

● Boilers and heating systems

● Fireplaces

● The floor and wall areas of the property

● Solar panels

● Wind turbines

● Roofs, walls, and insulation

Grade A is the most energy-efficient with Grade G being the least energy efficient.

The History of EPCs

Private rental properties in England and Wales have required an EPC ever since October 2008. On 1st April 2018, the Minimum Energy Efficiency Standards Regulations (MEES) came into force. As a result, the minimum EPC rating for all new tenancies and renewal tenancies became an EPC rating of E or above.

Since 1st April 2020, MEES has applied to all tenancies, not only to rental properties of new tenancies or renewals.

The effect of MESS means that if your rental property did not have a valid EPC rating of E or above on the relevant date that the minimum standard came into force, it was incapable of being legally let.

Landlords of properties of F and G EPC rated homes are currently required to invest or co-invest to improve properties to the minimum standard of E if third-party funding is either unavailable or insufficient. However, the amount that landlords are required to spend on improvements is capped at £3,500 inc VAT. If this is not enough to bring a property to the minimum standard, a temporary exemption for up to 5 years is available to landlords where the works are not technically advisable or financially feasible.

The Government’s Latest Consultation

On 30 September 2020, the Government published a new consultation, “Improving the Energy Performance of Privately Rented Homes in England and Wales”, which closes on 30 December 2020. One of the driving factors for the consultation is the fact that the domestic private rental sector now accounts for 20% of all households and has been on the rise for the last 10 years.

The consultation has a preferred scenario for the improvement of the energy performance of privately rented homes and consists of four proposals or elements:

1. Upgrading the minimum standard of energy performance from EPC Band E to C – 67% of privately rented homes have an EPC Band below C;

2. A staged introduction of a single EPC target of Band C to apply to all new tenancies from 1 April 2025, and to all tenancies from 1 April 2028, so as to limit the disruption to landlords and tenants and to allow landlords sufficient time to install multiple measures at the same time, rather than to do this in a piecemeal fashion;

3. Increasing the maximum investment cap from £3,500 inc VAT to £10,000 inc VAT – it is anticipated that the average spend by landlords will be £4,700 inc VAT per property;

4. Launching a “fabric first” approach to energy performance advancements. Fabric first is a general principle that looks to improve the fabric efficiency of a building before looking at heat and electricity generation. This approach would mean that landlords would no longer be allowed to install recommended EPC measures in any order of preference and would instead be required to apply measures in the following order: i) insulation; ii) heating and hot water; iii) windows and door upgrades, and iv) electricity generation measures.

Who Will Meet the Costs?

Ultimately, those expected to deal with, or meet the costs of the new EPC standard are landlords. Due to the proposals of this consultation, it is expected that a number of landlords may choose to leave the sector or will increase current rents before the new standards come into effect in order to finance the extra costs. This is due to the increase in the investment amount per property.

This will of course impact tenants, who may not be able to afford the increase, and further legislation might be needed to exclude these costs from being passed on.

What Enforcement/Litigation Might We Expect?

The consultation seeks to strengthen enforcement options through assisting local authorities in the enforcement of minimum energy standards in the privately rented sector through multiple proposals such as:

● Allowing local authorities to examine properties;

● Increasing the penalty on non-compliant landlords to a fine of £30,000 from £5,000;

● Authorising local authorities to utilise EPC Open Data (which is currently limited to research use only), to be used for enforcement in the privately rented sector;

● Granting tenants the liberty to request the carrying out of energy performance improvements in cases where the landlords are non-compliant and giving them the right to request compensation from the landlord for paying higher energy bills;

● Introducing a compulsory requirement for a post-improvement EPC to be commissioned to demonstrate the landlord’s overall compliance.

How Our Firm Can Help

Whether you need advice on the existing rules and regulations and relevant exemptions or would like to discuss how the proposed legislative changes might affect your current or future property purchases and invesments or rental plans, contact our specialist Property Law team for objective and cost-effective advice and assistance.