The Minimum Energy Performance of Buildings (No. 2) Bill sets a target of achieving an energy rating of C or above by 2035 and non-domestic property rated B or above by 2030.
Energy efficiency requirements will require significant investments on domestic properties, subject to various caps and limited time exemptions.
Landlords with a multiple property portfolio can claim costs as a deduction from income, but the position is less clear for those with single rental properties.
Clarification on the type of expenditure incurred by landlords that is deductible from income, such as installing cavity wall insulation, will be required.
The government is proposing changes to the Bill, which governs the minimum energy efficiency standards that a privately rented building must meet in order to be rented to tenants.
Currently, the minimum EPC band landlords need to achieve to rent out a property in the private housing sector in England or Wales is an EPC E.
However, the new proposals are seeking to raise this minimum threshold to an EPC C.
Why have these changes been proposed?
The government has announced its ambitious intention to make the UK carbon neutral by 2050 and tackling the energy efficiency of properties is a key part of its agenda to meet this target.
Figures released by the Department for Business, Energy, and Industrial Strategy estimate that UK homes account for 15% of greenhouse gas emissions, with poor insulation reportedly at the root of the problem.
Many of these underperforming properties are currently within the private rental sector.
What might happen?
Under the current proposals, the government has outlined its intention for the legal change to EPC requirements to take effect in two stages:
- By 2025, it wants EPC C to be the legally required minimum for all new tenancies in England and Wales.
- By 2028, it plans to blanket extend this legal requirement for EPC C to all private tenancies.
If the Bill is passed, landlords in England and Wales whose properties have not been categorised as an EPC C will essentially be left with two choices:
- Improve the energy efficiency of their property to bring it up to a level C standard that enables it to be legally let, incurring any costs of this
- Sell their property/properties
Ultimately, landlords will have to meet the financial costs of making their rental portfolio energy efficient (which could amount to £4,700 per property based on government modelling) or, they will have to forfeit or slim down their portfolio to offload properties that can no longer be legally rented.
However, the Bill does provide that where it is not economically viable to upgrade a property there will be a five-year exemption available. Although, this will only apply if the landlord has spent at least £20,000 on viable changes.
What does this mean?
While it’s too early to tell the impact of any proposed EPC changes could have on property prices, it’s reasonable to speculate that properties falling below the EPC C minimum may see their value fall, particularly if the market were to suddenly be saturated with properties below the required rating.
However, landlords with the capital and resources to make energy efficiency improvements may be able to take advantage of the situation to purchase new rental properties for less than market value before carrying out the required changes.
There are some exceptions to the proposed new rules, but very few will affect the majority of homes in England and Wales.
However, there is ongoing conversations around how EPC applies to these buildings so this may change.
The requirement for non-domestic buildings to improve EPC ratings is due to be even stricter. A band rating of B must be achieved.
However, the same cap on expenditure applies and the building is also exempt from the regulation if it is not feasible to make the changes required to achieve a B rating.
Will there be any government assistance?
At present, no bursaries or grants have been announced. However, with a growing cost of living crisis spurred on by rising fuel, food, and energy prices, it is possible the government may introduce some form of financial compensation to assist landlords in the future.
However, as it stands, the responsibility is very much on the landlords to foot the bill.
It’s also worth noting that the penalty for not providing an up-to-date EPC when selling your home or letting it to a new tenant could, under the proposed plans, rise by 500% from £5,000 to £30,000.
As always, if you would like any further information regarding the above, please don’t hesitate to contact us.