1. What you need to know about changes to Energy Performance Certificates

What you need to know about changes to Energy Performance Certificates

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As the government works towards its target of reaching net zero emissions by 2050, it has looked to tackle emissions across all sectors of the economy, including properties. Britain’s housing stock is some of the oldest in Europe so the government, homeowners and landlords face unique and complex challenges with increasing the energy efficiency of homes and commercial buildings. The UK government has sought to bring in measures to steer property owners in England and Wales to make greener choices (Scotland has a separate system of rules and financial help), and part of this is to tighten standards around energy efficiency ratings. 

Here is our guide to what is happening and how it might affect you.

What is an EPC rating?

An Energy Performance Certificate (EPC) is a document that sets out how energy efficient a property is from A (most efficient) to G (least efficient). It also sets out the potential level of emissions with the associated costs of improving the rating for that property. 

A property’s EPC rating indicates the costs associated with heating and lighting a property. EPC bands are calculated by assessing several factors such as insulation, airtightness, windows and heating systems. 

An EPC must be obtained whenever a property is built, sold or rented. Property owners must obtain an EPC for potential buyers and tenants before the property is marketed to buy or rent.

What are MEES?

Legislation introduced in 2015 established Minimum Energy Efficiency Standards (MEES) for residential and commercial properties, requiring that these properties must have a minimum EPC rating of E in order to be let out.

Properties with an EPC rating of F or G cannot be let unless work is carried out to improve their energy efficiency. Some exemptions to the EPC and MEES requirements do apply; listed or officially protected buildings for example, do not require an EPC if the owner can demonstrate meeting the requirements would alter it unacceptably. Listed property owners are still subject to MEES regulations, however, and must show how they have tried to comply with the listing limitations when seeking an exemption.

What are the current requirements?

From 1 April 2018 MEES requirements came into force, making it unlawful to let properties, both domestic and commercial, on a new lease with an EPC rating lower than E.

On 1 April 2020 the band E threshold extended to existing privately rented residential properties.

MEES requirements will extend to all existing commercial leases from 1 April 2023.

The government is also taking a phased approach to exemptions from the MEES requirements. Previously, domestic landlords could apply for an exemption if they showed meeting the requirements would involve a cost to them. In 2019 this changed, and exemptions could only be applied for where the cost of bringing a property up to EPC E would cost over £3,500, or the costs of improvements would take over seven years to pay back. Potential exemptions include if a landlord can show they have carried out the maximum amount of work to improve a property’s energy performance, but are still unable to meet the requirements.

The latest government consultation includes proposals for raising the exemption cap to £10,000 per property. 

How could requirements for non-domestic (commercial) properties change in the future?

The government set out its plans for the future trajectory for non-domestic MEES in its Energy White Paper, published in 2020, proposing commercial properties should meet EPC band B by 2030. It published a consultation paper in June 2021 on proposals for the implementation and enforcement of its EPC B plans.

The government proposed a phased approach to implementation, by introducing ‘compliance windows’.

The ‘compliance window’ will begin with the requirement for landlords to present a valid EPC. For EPC C, the government proposes that the compliance window should be 2025-2027, and for EPC B 2028-2030.

The government is considering views in response to the proposals set out in the consultation; legislation is yet to be put forward to enshrine the changes in law. 

How could the requirements for residential properties change in the future?

In January 2021 the government published its proposals for raising MEES for privately rented residential properties. The proposed changes would see new domestic tenancies required to be at EPC C from 1 April 2025, and all domestic tenancies reach EPC C by 1 April 2028.

The department for Business, Energy and Industrial Strategy (BEIS) is working with the Building Research Establishment (BRE) to review the system for assessing properties for EPC ratings. The changes will likely modernise the current assessment system by taking new technologies into account in a more effective way. This includes heat pumps, renewables and smart control devices. Changes to the system, which are still yet to be announced, are expected to come into force from 2025.

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What support is available from the government?

While the government has moved to tighten policies and regulations around EPCs and MEEs, at the moment there is a notable lack of support available from the government for property owners in making their properties more energy efficient, although the Chancellor did remove VAT (which was previously at 5%) on qualifying energy efficiency materials.

The government introduced £450m in funding for a new Boiler Upgrade Scheme in March 2022 for residential properties. Subsidies of up to £5,000 per household to cover cost and installation of a heat pump or biomass boiler are available through this scheme. It also provides for a £6,000 discount on the cost and installation of ground source heat pumps. While the scheme is helpful for funding low carbon heating technologies, a comprehensive package with funding for energy efficiency measures such as insulation is not available, but is needed to encourage property owners to make greener choices.