The government has committed to energy-efficiency and low-carbon emission targets, and has announced plans to pass on some of the legwork to landlords within the next three years.

Let’s take a look at what landlords need to know about energy performance requirements, deadlines, and the costs of non-compliance.

What is the Energy Performance Band C Rating?

Energy Performance Certificates (EPCs) were introduced in 2007 to check how efficient an individual building is. If you’ve bought or sold a property in the last 15 years, you’ll be familiar with the assessment carried out by an approved energy assessor.

The assessor looks at various factors, such as windows, doors, lighting, heating and insulation. Certificate ratings range from A to G, from the most efficient to the least, and remain valid for ten years. Whenever a property is built, sold, or let to a new tenant, the owner needs to obtain an updated EPC.

Why Are Landlord Energy Efficiency Rules Changing?

Since 2018, every new rental agreement has needed to be accompanied by an EPC. Certificates must demonstrate a rating measured at band E as a minimum – that requirement has also applied to pre-existing tenancies since 2020. These current rules are set out in the Domestic Minimum Energy Efficiency Standards Regulations – MEES for short.

Landlords with a property rated F or G are not permitted to let the residence unless they meet exemption criteria or have invested a minimum amount in improving standards. Although this further bill isn’t yet ratified, it seems likely to be passed into law, setting new, much stricter targets. Rental properties may need to meet band C requirements (rather than band E) – and the suggested deadline has been brought forward from 2030 to 2025.

That could impact an estimated 60% of all domestic properties, given the proportion of older homes. Mortgage lenders would also need to meet an average property rating of band C across lending ledgers by 2030.

What Are the New Energy Performance Requirements for Rented Properties?

A new bill called the Minimum Energy Performance of Buildings is linked with the Clean Growth Strategy. Among other conditions, the provisional bill states that domestic properties should achieve at least EPC Band C by 2035 and that:

• New rental tenancies from 31st December 2025 onwards would need to meet the same minimum energy efficiency performance.
• Existing tenancies would be required to comply with the threshold from 31st December 2028.

We don’t yet know further details, including how the government will make this practical, cost-effective and affordable or whether the bill will pass in its current format.

Still, landlords should know about the requirements and build in sufficient time to make any necessary adjustments.

What Happens if a Rental Property Doesn’t Meet EPC Band C Thresholds?

While there are some exceptions, most landlords would be subject to local authority fines if they breach the requirements, with the existing system permitting penalties of up to £5,000. We don’t yet know whether that will change, but a similar enforcement schedule will presumably apply.

Which Rental Properties Will Be Exempt from Stricter Energy Performance Requirements?

Some properties already qualify for an exemption (so they don’t need to have an EPC of at least an E rating). The new rules will probably offer comparable exclusions.

Those tend to cover:

• Properties where there is a technical reason the landlord cannot improve energy efficiency.
• If a mortgage lender, tenant or other relevant party refuses consent for improvement works to occur.
• New property investments – landlords have six months to meet EPC requirements on new portfolio acquisitions.
• Affordability exemptions also apply, although property owners normally need to demonstrate a minimum level of investment, above which further improvements are deemed unnecessary.

If you successfully qualify for an exemption, you need to register that on the PRS Exemptions Register and can then let the residence for five years – after which time you must repeat the process.

How Much Will it Cost to Update a Rental Property to Reach EPC Band C?

It’s impossible to give an accurate indication. Much depends on which areas of the property require improvement (e.g. replacing single glazing, installing new loft insulation or the cost of a more efficient central heating system).

Last summer, a report by This Is Money estimated that it would cost as much as £27,000 to bring property from band G to band C. However, the current cap is £3,500 – if you can prove you have invested that amount in efficiency upgrades, you won’t usually be expected to spend more. Note that exemption certificates last for five years, so it may be a case of spending £3,500 every period to remain eligible.

There are also several grant schemes, including the new Boiler Upgrade Scheme, running from this month until 2025, whereby landlords can apply for grants of up to £6,000 towards the costs of a low carbon heat pump or biomass boiler.

What Can Landlords Do Now to Prepare for New EPC Requirements?

The key to an ever-changing regulatory landscape is to leverage support from property management advisors and stay ahead of the game to ensure your profit margins are protected and your investments made with a clear idea of their future earnings potential.

This news may affect your decisions about which rental properties to invest in or where to prioritise upgrades to existing portfolio assets. If you are considering expanding your portfolio, it’s wise to focus on the EPC to determine whether the property will likely require substantial improvements when the new rules come into play.

Our next suggestion would be to evaluate EPC ratings for all existing properties or conduct an assessment on buildings bought before 2007, as they may not have an EPC if there hasn’t been a change of tenancy in the interim. Rental properties that don’t comply with the current rules and would be difficult or very expensive to bring into better condition may be costly to retain.

Some landlords may opt to sell some assets as they may become challenging to let in the future – or adjust their plans for new properties given the potential cost of energy efficiency improvements.

We hope this article explains all the proposed new rules, deadlines, and implications – although please note that the bill is still a proposal and may be amended before it becomes law. It’s also possible that some of the suggested terms or deadlines will change, in which case the Tod Anstee lettings team will endeavour to provide prompt updates. In the meantime, if you require any professional advice, support evaluating the profitability of a potential new purchase, or help to understand the regulations and how best to respond, please get in touch.