How much will landlords need to invest to move to an EPC band C?
Gina Peters, Dutton Gregory LLP, shares an update on the plans to increase minimum energy efficiency standards from an EPC band E to C rating.
EPCs are more or less second nature to property professionals building, letting, or selling a property. COP26 in Glasgow in October 2021 formed the basis for the government’s commitment to a "net zero" strategy for 2050 and in the private rented sector this means raising the standards and energy efficiency of homes let.
The current requirements
For the private rented sector, with the introduction of the Energy Efficiency (Private Rented Property)(England and Wales) Regulations 2015 as amended in 2016, all new tenancies from 1 April 2018 have had to have an EPC with a minimum rating of E or the property registered with an exemption to allow the property to be let.
From 1 April 2020, this extended to all tenancies in existence, effectively all properties being privately let. This has meant landlords at least attempting to improve any lower rating properties to an E by carrying out improvements to the value of the CAP of £3,500 which includes VAT.
Once done and the property is still not at a rating of E this at least provides the basis for an exemption.
Increasing minimum energy efficiency standards
The problems experienced by some landlords in complying with the minimum rating of E for energy efficiency for all properties are about to get worse.
The government is committed in its "Build back Greener" strategy and net zero target to raising energy efficiency further. It is therefore proposing to raise the rating to C for all new tenancies from 2025. This would then apply to all tenancies by 2028.
A lack of clarity
At this stage, there's no real detail of what the expectations from landlords will be to try and reach this new rating. Many landlords will have faced significant difficulties just improving to an E.
The new proposals seem to be an increasingly expensive exercise involving more extensive improvements such as cavity wall insulation, changes to hearing systems and other potentially significant works to properties which may never reach the proposed new rating level in any event.
The government's English National Housing Survey 2019-2020 estimated that it would cost landlords £7,646 on average to upgrade to an EPC rating band C.
Breaking this down further, it predicts that almost a third of the relevant properties could be bumped up to the required rating for under £5,000, while 26% would need to spend more than £10,000 to upgrade.
The government has therefore proposed increasing the investment limit for landlords to£10,000, with potential fines of £30,000 for non-compliance.
More work required
Many landlords have already made some headway on the upgrades, according to the 2020-2021 edition of the same survey, with the proportion of homes in Energy Efficiency Rating (EER) bands A to C growing from 14% to 46% between 2010 to 2020 - but that still leaves a sizeable proportion with work still to do.
There will need to be more consultation with stakeholders or lobbying by them at the least on these intended EPC changes in order for the government’s intentions to prove meaningful for all in the lettings sector.
It seems that a fairer approach may be to have a system related to types of property and age of building rather than the blanket approach that is currently intended.
Agents and landlords should look out for further developments in the coming months.