23 September 2022 by Artan Llabjani

Proposed EPC changes: avoid an unrentable property

The law provides that, if someone is renting or selling their premises, then it must have an Energy Performance Certificate (EPC) in place.

EPCs are valid for ten years or until a newer EPC is produced for the same property. In most cases, their rating must be at least an E to comply with the legislation.

Proposed amendments to EPC rules

There are proposed amendments to the current EPC rules, which would come into force in April 2023,  and will have significant implications for landlords.

Currently, properties with a tenancy in place prior to 2018 are permitted an F rating to be compliant with the EPC regulations. However, from April next year, all commercially rented properties will need a rating of at least an E to continue being let.

It is important that landlords with existing long leases or tenancies prior to 2018 check their EPC as, although they may not think they need to make any adjustments, it may be that their property is caught by this new rule.

For new tenancies and leases, the Government is proposing raising the minimum EPC rating to a C. This is part of the plan to require all new tenancies to have a rating of C by 2025 and existing tenancies to follow suit by 2028. This is a big jump which will potentially require landlords to put a significant amount of work and money into making their property more energy efficient. The Government has advised that there will be a cost cap of £10,000 for this work. However, this again a big jump from the existing cap of £3,500, which already exists to assist landlords reach an E rating from a lower rating.

These changes will affect many landlords in the UK, with those renting out older houses likely to be more financially impacted, given it is likely they will incur higher costs improving their energy efficiency. It will also prove difficult for landlords renting out specific types of properties, for example period homes, where it is not possible to insulate the walls or add double glazing.

Given the costs involved in making their property more energy efficient, it is likely many landlords will either sell their buy-to-let properties or stop renting them out, if these proposed changes come into force. For those keeping their property, the costs will likely be passed down to their tenants through increased rent. Some landlords have suggested, when the works are completed, the rent will naturally rise further given the likely savings the tenants will make on energy bills, due to the energy-efficient features.

If the landlord decides to not make any adjustments, they currently face a penalty of £5,000 as well as risking having a loss of income until the work is carried out. The new regulations propose an increase to this penalty to £30,000 from 2025. It is therefore strongly recommended that landlords comply with the EPC regulations at the earliest opportunity.

We would urge all landlords to consult their existing EPCs and consider what cost-effective options they may have open to them to ensure a higher energy-efficient rating. Ultimately, this may lead to landlords reconsidering their property portfolio and purchasing newer buildings.

For advice about buying tenanted properties and other real estate matters please contact Artan Llabjani in our Commercial Real Estate team.

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