What landlords need to know about energy efficiency rules

Meeting energy efficiency rules is already a challenge for many farmers and landowners with let property, given that many homes in rural areas are of an older build, listed or in a conservation area, and without a mains gas supply.

But the challenge could be about to get harder, with the government recently conducting a consultation that could result in even tougher standards being implemented in the future.

What are the current rules?

The Minimum Energy Efficiency Standards (MEES) were implemented on 1 April 2018, introducing the requirement for residential landlords to ensure any new tenancies have an energy performance certificate (EPC) with a minimum rating of E. As of 1 April 2020.

The legislation was extended to cover all existing relevant residential tenancies.

The regulations provide a limited number of temporary exemptions for properties with an EPC rating of F or G, to protect landlords where it is not technically advisable, financially feasible or if a tenant refuses to permit works, to bring those properties up to an EPC E rating.

See also: How new review method could make rents more sustainable

What has been proposed?

The consultation closed in June and proposed raising the minimum EPC rating to a C for new residential tenancies from 2025 and for existing residential tenancies from 2028.

It also proposed increasing the cap on the cost of investment required for each property.

At present, landlords of non-compliant homes are required to invest in improving the energy performance of these properties to reach band E, if third-party grant funding is unavailable or insufficient.

The landlord spend requirement is currently capped at £3,500 (VAT inclusive), but the government wants to increase this cap to £10,000 (VAT inclusive) for new tenancies from April 2025 and all tenancies by April 2028.

It also wants to introduce a “fabric first” approach to energy improvements, which means landlords will need to prioritise measures that improve the energy efficiency of the fabric of the building over the installation of low-carbon heating systems, such as heat pumps.

Will there be exemptions?

The government has said it will be looking to review the exemption framework to make it simpler for landlords to use exemptions.

As part of the consultation, it also sought views on where there should be an affordability exemption for landlords who are making £1,000 or less in annual taxable profit from rent.

What does this mean for rural landlords?

Although the government is yet to announce the outcome of the consultation, it is widely expected that the rules will tighten.

The government has said that meeting its carbon goals will require the vast majority of the UK’s 27 million homes and 2 million non-domestic buildings to be virtually zero carbon by 2050, through a combination of energy efficiency, smart technologies, and moving to low-carbon heating systems.

This will be challenging for many rural landlords, as it tends to cost more to bring rural properties up to standard than it does for urban housing stock.

Landlords need to start planning how they meet the new requirements.

Some local authorities are already rigorously enforcing the standards, and as the government is making new funding available to support this work, enforcement is likely to become stricter.

How can landlords increase their EPC rating?

Every property needs to be looked at individually, as there may be restrictions on what a landlord can do, for example if a property is listed.  What someone is willing to invest in a property will also depend on the rents generated.

It can be more cost-effective to include the energy improvement works within a property refurbishment than to complete them at a later date, so it may be worth building these in to any refurbishment plans.

If something needs replacing now that will not be looked on favourably in the future – such as LPG or oil central heating – look for the renewable alternatives such as heat pumps or solar panels.

However, it is worth noting that it is not yet clear whether any money spent in 2021 and 2022 will count towards the proposed £10,000 cost cap, so there is a risk associated with spending money now. Hopefully this will be clarified when the government publishes the outcome of its consultation.

One of the easiest wins is installing loft insulation, which can significantly improve the rating of the property without making changes that could damage the fabric and appearance of older buildings.

This will also be considered as a “fabric” insulation in line with the government’s proposal for landlords to complete fabric improvements first.

Other cost-effective improvements include insulating hot water cylinders, installing low-energy lighting in all areas, draught-proofing windows and doors and upgrading heating controls.

In terms of heating systems, there are now electric high-retention storage heaters available that can provide significant energy performance improvements at an affordable price.

However, before installing any new technology it is crucial that a draft EPC (now called an overview report) is undertaken by a qualified and reputable assessor to ensure the proposed energy improvement work is recognised on the EPC data input software used by assessors and that the improvement will affect the property’s rating.

Attending this visit can also enable the landlord or their agent to point out to the assessor any energy saving measures that may not be obvious.

Not all EPC assessments are the same and booking a cheap one can mean some useful and cost-effective technologies will get overlooked.

There are two different checks that can be carried out – a SAP (standard assessment procedure) and a RDSAP (reduced data standard assessment procedure). An SAP is more accurate (although slightly more expensive), which makes it advisable, particularly for properties where the rating is likely to be low.

However, it is worth noting that the SAP software is due a major update shortly (as is the RDSAP software in 2023).

This means if landlords do not need an EPC imminently to meet letting compliance, then it may be worth waiting until after the updates have been made.

This will ensure that they are as accurate as possible, which may assist landlords trying to reach the proposed band C.

What currently happens if you still can’t meet the minimum rating?

Landlords can apply for one of six different exemption types on the private rented sector exemptions register.

Once registered, most of the exemptions are valid for five years, but some capital expenditure may be required before successfully registering an exemption.

Common EPC questions

Q: A landlord lets a farm on a farm business tenancy (FBT) or Agricultural Holdings Act (AHA) agreement. The farm includes a principal farmhouse where the tenant lives. Will the farmhouse be covered by the regulations?

FBT or AHA tenancies are not specified in the MEES regulations defining domestic properties. While farmhouses and cottages let on FBT or AHA tenancies require an EPC if they were let post-October 2008, they are not required to comply with the domestic or non-domestic MEES regulations.

However, if a farm tenant of an FBT or AHA tenancy sublets a farm cottage to a third party on an assured shorthold tenancy, they must comply with the regulations. Equally, if the tenant sublets a cottage to a farmworker on an assured agricultural occupancy, this falls under the regulations.

Q: A landlord lets a listed property. Does it require an EPC and does it fall within the MEES requirements?

The position for listed buildings and those in conservation areas is that the government requires all such buildings to have an EPC if they are let post-1 October 2008.

However, this does not change the government’s position regarding consent for energy efficiency improvements. Only works that have or do not require listed building consent can be carried out.

If the EPC report recommended work such as adding double glazing, new doors, or external wall insulation, then this is likely to result in unacceptable changes to the fabric of the building and should not be carried out.

Landlords will need to take a view as to whether the works are unacceptable and will alter the characteristics of the property.

If there is any doubt as to whether works would unacceptably alter the character or appearance of a building, landlords may wish to seek advice from their local authority.

Alice Robinson is a senior associate director in the land management department of Strutt & Parker, based in the company’s Stamford office.