Energy Performance Certificates in 2023: an Update
16 February, 2023
The Energy Performance Certificate regulations are changing. Here’s what you need to know as a buy-to-let landlord.
By way of background, an Energy Performance Certificate (or “EPC” for short) is intended to promote the energy efficiency of buildings in England and Wales and identify ways of reducing associated costs.
An EPC gives a property an energy efficiency rating from “A” (most efficient) to “G” (least efficient) and is based on a complex calculation looking at a range of factors including age, type, construction and insulation. It is valid for ten years once issued and is required when a property is sold, rented out, first constructed or significantly refurbished.
The UK Government has recently turned its attention to improving the energy efficiency of the country’s homes – particularly buy to let properties and new builds – in pursuit of its ambitious carbon neutrality goals. As a result, the minimum energy efficiency standard (MEES) of residential buy-to-lets is being raised.
At the time of writing, the MEES regulations impose a ban on landlords renting out domestic (and non-domestic) properties falling below an efficiency rating of “E” unless they make specific improvements or are eligible for an exemption. However, the government has announced its intention to increase this minimum standard to a “C” rating in 2025, with proposals for a further increase to a “B” rating in 2030. As before, these new regulations will apply to new tenancies first, followed by all tenancies from 2028. The penalty for not having a valid EPC will also be raised from £5,000 to £30,000 by 2025.
As a result, landlords of buy-to-let properties falling foul of the new minimum “C” rating will need to obtain a fresh EPC rating and implement the recommended improvements at personal cost to lawfully keep the properties as buy-to-lets.
Alarmingly, recent survey statistics indicate almost 60% of homes in the UK have a “D” rating. Therefore, the proposed change is likely to affect the majority of UK landlords and potentially cost them thousands of pounds in forced property upgrades. Whilst the cap for EPC improvement costs is currently set at £3,500 including VAT, this also looks set to be raised to £10,000 for the new minimum rating.
It is important to note that landlords do not have an automatic right of entry to carry out energy improvement works. Whether they are entitled to do so will depend on the drafting of the relevant lease. Where there is no express right, a landlord will need the tenant’s consent. If not given, landlords may be able to register a “consent exemption” to, subject to limitations, avoid penalties for non-compliance.
There are a range of exemptions on which a landlord may rely to avoid liability for letting a domestic property with a rating below the minimum rating; including, for example:
- the recommended improvements would reduce the market value of the property (or building of which it forms part) by more than 5%;
- the recommended improvements are not approved by a lender, superior landlord or local authority (where their consent is required); or
- the recommended improvements have been implemented and the property remains below the minimum rating.
With the minimum rating likely to be raised further by 2030, landlords are faced with the prospect of further improvement costs. It is therefore prudent to, if necessary, immediately begin planning property improvements to spread the cost over the course of the next decade, consider available funding options and review the re-entry provisions of the relevant lease.
Author: Joseph Roberts – Trainee Solicitor, Storrar Cowdry