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In March 2023, the government readjusted the deadline for all rental properties to require an Energy Performance Certificate (EPC) rating of ‘C’ or above by 2028. It is part of the country’s plan to be net-zero by the year 2050. There will be a £30,000 penalty for any rental property not compliant with the EPC standards as of 2028.
Millions of properties are at risk of being classed as unrentable, unsellable, or unmortgageable as their current EPC is below the future minimum requirement. A substantial number of landlords will need to make changes so their rental properties adhere to the new EPC standards.
Landlords unaware of these changes are at risk of losing income. They are not considering the amount of effort that goes into improving a property’s EPC rating. Also, they may not be able to obtain the right financial support to balance this. It is the landlord’s obligation to ensure that the EPC meets the requirements, and the obligations do not sit with the tenant.
Energy Assessment Survey
To check your property’s EPC, you will need to have an Energy Assessment Survey carried out. It is a legal requirement to give your tenants at least 24 hours written notice if you are planning to arrange an EPC assessment. It is also a legal requirement to provide your tenant with a copy of the EPC. The Domestic Energy Assessor will perform a number of inspections to evaluate how energy efficient the property is. An EPC rating of ‘A’ is the most efficient and ‘G’ is the least efficient.
Some of the areas that the assessor will inspect are:
- Roofs, walls, and insulation
- Boilers and heating systems
- Renewable energy devices (solar panels or wind turbines)
- The building measurements
- The year the property was built
As of April 2023, it is illegal to let a property unless it has an EPC rating of ‘E’ or above, unless there is a valid exemption. A property may be exempt where the landlord has already made all the relevant energy efficiency improvements, or where any cannot be made.
Non-compliance with Minimum Energy Efficiency Standards (MEES) could result in enforcement action and a fine. For breaches with a length of less than three months, the maximum penalty for commercial properties is £5,000 or 10% of the rateable value of the property. For breaches with a length of more than three months, the penalty doubles: the maximum penalty is £10,000 or 20% of the rateable value of the property.
What is the potential cost?
Landlords should prepare now for the changes, starting with a review of their properties to ascertain if they fall below the proposed new minimum threshold. We would recommend landlords consult and engage with occupiers in respect of any proposed works and associated costs.
Depending on the size of the rental property, the government estimates the average cost for a landlord to make improvements to obtain an EPC rating of ‘C’ or above is around £4,700. Although, larger or older homes will likely cost more. However, the government states that you will never be required to spend more than £3,500 (incl. VAT) on energy efficiency improvements.
Research by Shawbrook Bank states that four in 10 landlords say their properties in London were built before 1940. This is also true for the South West. Therefore, they require more work to fit to EPC standards. In particular, over 10% of private rental housing stock across the country are Victorian properties. This means that a significant number of properties have a chance of being classed as unrentable or unsellable within the next five years.
The value of an energy efficient property
Some properties hold their value better if they have more ideal energy efficiency credentials. This is particularly important if you are renting out residential property in regional cities where build-to-rent accommodation is on the rise, such as Manchester or Birmingham, as well as London. The design of this style of accommodation is more energy efficient, which will help lower the cost of utility bills.
There is a forecast rise in rental prices over the coming years due to the increase in demand. With this in mind, landlords need to be aware of the affordability issues tenants may face. Potentially low-cost utility bills will be hugely beneficial in this circumstance. This is also useful if you are having to pay the electricity and water bills while the property is vacant.
If bills are cheaper, there is scope to increase cost of rent. Many other factors come into play for a potential tenant to realise the increased value your property has in comparison to others on the renter’s market.
Property owners will want to act quickly on upgrading their commercial lots, given how costly the investments could be. To hit the future minimum, the cost to the UK’s industrial, manufacturing, logistics and warehousing property stock expects to reach £30bn.
What else can landlords do?
The most important factor is ensuring the property adheres to rental laws and regulations. Make sure to address any maintenance or repair issues as promptly as possible. Between tenants, the property should undergo a thorough inspection to highlight any potential hazards. It is good practice to acquire a comprehensive fire alarm report from certified professionals to provide an overview of the alarm system’s current status. This demonstrates your commitment to tenant safety and has the potential to save lives.
Once you know your rental property’s current EPC and know if you need to make improvements, consider what you can do to increase the rating. This could include installing insulation, upgrading the windows to be double- or triple-glazed, or replacing the boiler.
Installing new energy-efficient appliances do not need to be top-of-the-range either. Many tenants will be happy with well-kept, cost-effective options that are more widely available. If they become damaged or need repair, parts should be easier to come by and be relatively simple to switch out by an engineer. To make your rental property stand out even more amongst others, you could also include additional appliances like a washing machine or dishwasher. However, it is important to note that EPC standards need updating as they do not always account all energy efficient appliances.
Going beyond the new EPC standards
If you are committing to implementing sustainability, and you want to go beyond the new EPC regulations 2023, sustainable retrofitting is commonplace in the letting arena. Sustainable retrofitting is the sustainable refurbishment of an existing building to make it more efficient, better for the environment, and sustainable for the future.
The actual works carried out can be a combination of things but among the most popular are:
- Real time visibility of energy consumption
- Water efficiency retrofits
- Commissioning of the HVAC system
- Green roofs that support vegetation growth can reduce site level storm water runoff, lower a buildings cooling or heating energy demand
- Any ‘green’ practice that removes pollutions, dust, mould, or other airborne matters from indoor air
- LED retrofits
- Re-commissioning available space
- Retrofit IoT sensors
There are some opportunities for funding to help alleviate the cost of improvements. It’s worth noting if your local council offers any financial incentives for EPC or energy efficiency improvements. One possible option, if your property is eligible, is the boiler upgrade scheme – a grant to cover part of the cost of replacing fossil fuel heating systems with a heat pump or biomass boiler.
The gov.uk website offers a bespoke list of recommendations, depending on the information you provide, for improving your property’s EPC standards, which could make your property cheaper to heat and keep warm.
For further advice and assistance, please contact one of our property experts.