Energy Efficiency Standards are Changing

The Minimum Energy Efficiency Standards are Changing: What Landlords Need to Know

New government proposals planned for 2025 are going to increase the requirements on landlords to make their properties more energy efficient.

These requirements are expected to cost on average £7,000 per property.

While the rule change is not yet official, it appears likely that the government will tighten the standards surrounding energy efficiency in rental homes as the country works to fulfil its carbon goals and targets.

In this article we are going to look at:

✅ What the current situation is
✅ What the government is proposing
✅ How this will impact landlords
✅ What landlords can do to address the new EPC requirements

What is the Current Situation?

Amongst the UK rental sector, privately rented properties make up 20% of the UK’s housing stock.

These privately rented properties are among the least energy efficient.

They are responsible for:

❌ Costing over £6bn in energy bills in 2018
❌ Producing around 11 megatonnes of carbon dioxide equivalent a year

This is part of a wider trend. The government has already shown signs that they are slowly moving toward their energy efficiency goals.

In 2009, the number of privately rented homes in EPC bands A to C was at 38%.
In 2020, in the English Housing Survey 2019-2020, this percentage sat at 51%.
In 2020, the Office of National Statistics calculated that moving to Band C, as proposed, would cost each applicable privately rented property around £7,646.

What Is An EPC?

An Energy Performance Certificate (EPC) measures how energy efficient a household or building is.

It tracks the total energy consumption in kilowatt-hours per square metre per year (kWh/m2/year).

An EPC tracks all major energy-consuming systems, such as:

● Heating
● Cooling
● Ventilation
● Hot water
● Lighting

It is valid for five years once produced.

An EPC rating, which is called the Energy Efficiency Rating or EER, can be graded between A and G. A being highly energy efficient, and G not.

Answer these questions to find out whether your property is covered by the regulations:

1. Are you letting out a private rental property or HMO to individuals in the UK?

2. Are you letting out based on one of these tenancy types?

● a regulated tenancy?
● a domestic agricultural tenancy?

If you responded "yes" to both of these questions, you should already have an EPC of E or above. By 2025 you will need to have an EPC rating of C if you wish to let to a new tenant, or by 2028 for an existing tenant.

If you replied "no" to one or both of these questions, your property is not subject to the Regulations, and you are not required to take any action to enhance the property rating.

What is the Government Proposing?

Increasing Minimum Requirements

Under the current regulations, the minimum energy efficiency rating for privately rented properties is EPC Band E. To improve the overall energy performance, the UK government plans to raise the minimum energy efficiency standards to EPC Band C by 2025, for new tenants in privately rented properties, and 2028 for existing tenants. With these standards in place, the government has further committed to reaching a state of net-zero carbon by 2050.

The journey to net-zero by 2050 will need planning, and the government's updating of the Energy Performance of Buildings (England and Wales) Regulations 2012 (EPB Regulations) in 2022 is the most recent plan of action.

There are currently 3.2 million privately rented properties in England and Wales with an EPC rating of D or below.

The Regulations apply to all properties in the UK rental sector that are:

• Privately rented property
• Let on specific types of tenancy agreement

How Will this Impact Landlords?

With new regulations set to come into force, a high number of landlords across England and Wales will have to make significant property investment to their current facilities to meet the new minimum requirements.

Moving to a Band C-rated EPC may cost a landlord over £7,000 per applicable privately rented property.

Part of these regulations include a cost cap which provides an exemption if you need to spend more than £10,000 on improvements (this will include any money already spent on the way to Band E).

While the cost cap stands at £10,000 in total, any money that has already been spent on upgrading to Band E will count towards the cost cap to get to Band C. However, any money spent on upgrading to Band C will only count towards the cost cap if spent after 1st January 2023.

The new requirement will also disrupt landlords’ business with current and future tenants, having to renovate or fix their now unfit facilities.

Phasing in the New Requirements

The new requirements are set to be introduced in phases, applying to new tenancies from 1st April 2025 and all tenancies by 1st April 2028.

A phased introduction would:

● Limit the disruption to landlords and tenants
● Allow landlords to plan and save for improvements
● Encourage a “whole house” approach to improvements

What can Landlords do to Address the New EPC Requirements?

A “Fabric First” Plan

Before making improvements to a property’s heating and electricity efficiency, the government is suggesting to take a “fabric first” approach to energy efficiency.

This would mean improving the fabric efficiency of a building - for example, its insulation.

Not only will this be cost-effective, but it will also help understand what is needed to reach the new EPC standard.

Improvements are listed in the following order:

1. Insulation
2. Heating and hot water
3. Window and door upgrades
4. Electricity generation measures

There are some government initiatives to assist landlords with property improvements, including:

Zero-Rate VAT

Landlords needing to upgrade to a Band C-rated EPC by 2028 can take advantage of zero-rate VAT. This has come into effect from April 2022 and applies to the installation of materials used to upgrade the property’s energy efficiency. These energy saving materials include:

• Controls for central heating and hot water systems
• Draught stripping
• Insulation
• Solar panels
• Ground and air source heat pump
• Micro combined heat and power units
• Wood-fuelled boilers

Registering for an Exemption

A landlord with an EPC rating lower than C will still be permitted to let their property if it fits the criteria for any exemptions once they have registered the exemption on the PRS Exemptions Register.

All exemptions require the following information:

● Copy of a valid EPC for the property
● Address of the property
● Type of exemption you are applying

Currently any exemption is valid for 5 years. It will then expire, and the landlord will have to attempt to raise the property's EPC rating. If this is still not possible, they can file a new exemption

EVO’s mission is to try and ensure more decent and secure homes are available to renters. The strategy to achieve this is to enable tenants or renters to easily communicate property issues as they happen, whilst also ensuring that all regular maintenance and compliance checks are carried out.