Both current and future residential landlords should carefully take note of the latest Government developments on Energy Performance Certificate (“EPC”) requirements and the material implications these will have for the private rented sector. The Government has previously confirmed its intention to raise the minimum energy efficiency standard for rented properties to EPC rating C for both new and existing tenancies by 2030 and is now consulting about raising the rating even higher, representing a significant uplift from the current position. This article summarises the recent news and potential implications likely to occur in the very near future.
Current EPC requirements for residential Landlords
At the moment, landlords of residential premises must not grant or continue a tenancy of a property that has an EPC rating of below an ‘E’ unless a valid exemption applies. Under the Warm Homes Plan, the Government has confirmed that by 1 October 2030, all new and existing private rental properties must be raised to a minimum EPC rating of a ‘C’. For social rented properties, the deadline is earlier, 1 April 2030. Properties that breach this requirement could be subject to fines of up to £30,000 for the property and further fines for repeat and/or continuous offences.
One exemption granted is that, in order to facilitate steady property improvements to reach the increased minimum EPC rating, landlords are required to spend up to £10,000 per property, after which they may register their compliance efforts, stating that the required threshold cannot be achieved after spending this amount of money. This will grant those landlords an exemption valid for 10 years, during which the property can still be let. The Government estimates that most properties will be spending on average around £5,400, and the £10,000 cost cap is sufficient for almost all such properties.
The Warm Homes Plan is backed by up to £15 billion in public funding, some of which is channelled through existing schemes, for example, the Boiler Upgrade Scheme, which currently offers grants of up to £7,500 towards the cost of installing an air- or ground-source heat pump. Other support is provided through local authority schemes and is targeted at lower-income households. Residential landlords considering improvement works should check what may be available before committing to a specification.
Future EPC requirements and potential changes
The Government has now indicated that they are not just stopping at the current position but are in the consultation period about increasing the minimum EPC rating even further, likely to a ‘B’ or even an ‘A’ rating.
It’s entirely possible that, very shortly, the Government could announce that further changes to the current rules are made, such as raising the cost cap from £10,000 to a high figure (some experts are suggesting £25,000), lowering the above 10-year exemption to 5 years and laying further requirements for specific tenancies in certain areas such as heavily urban cities like London and Manchester. It could mean that those local authorities could enforce even stricter requirements on the landlords in their region.
The above indications and predicted changes are likely to have a number of practical and commercial implications for landlords. In particular, there is expected to be a significant increase in the demand for contractors to carry out recommended works stated in the EPCs and pressure on the building material supply chains. In turn, it is likely that some landlords will consider recovering at least a part of this expenditure through higher rents, particularly in the markets where the demand will remain high, such as London. For some landlords however, the cost of achieving compliance may render the letting of some of their properties to be uneconomical, potentially prompting a decision to dispose of such properties rather than undertake the required improvements.
In summary, the Government’s direction of travel is clear and the tightening of the requirements in the private rental sector will require landlords to carefully assess their positions and evaluate their options on how to proceed. For tenants, it may result in fluctuating prices changing yet again since the Renters Rights Act. Both the tenants and the landlords should therefore take a moment to review their portfolios, budgets and plans for the future in light of these forthcoming changes.
Commercial minimum energy efficiency standards follow a separate trajectory from the residential regime. The Warm Homes Plan focuses on private and social rented housing whereas government policy on commercial standards is less advanced. Owners of mixed-use portfolios will need to consider both regimes carefully and should seek specific advice.
With further changes to EPC requirements on the horizon, landlords and property owners should take steps now to understand their obligations and prepare for future energy efficiency standards. Seeking professional advice at an early stage can help mitigate risk and ensure compliance with evolving regulations. If you would like guidance on EPC requirements, landlord obligations or property compliance issues, please contact us for expert advice tailored to your circumstances.
