EPC rules for rental properties: all you need to know

Introduction

This article covers what landlords need to look out for in terms of beating the costs of the new changes to Energy Performance Certificates as well as what they really involve. There have been predictions that the costs for the average landlord in order to meet new regulations could be up to £8,500 bar the costs of other regulations like conducting electrical safety, complying with fuse box regulations and having relevant EICR checks.

What is the minimum EPC rating for a rental property?

At the moment the current minimum pass rating for an Energy Performance Certificate (EPC) is an E rating on an A to G scale where A refers to the highest rated, most energy-efficient buildings.

You can check the score, improvement recommendations and if an EPC certificate has expired for commercial or residential properties here on the government website.

What are the current EPC rules?

Currently, the rules for rental properties are in the landlord and tenants act 1954 which states there should be an EPC rating carried out on a property every 10 years. On top of this landlords must have an EPC valid (above an E) if they sell the property or there is a tenant in an assured tenancy currently living there.

Lenders also may choose to withdraw or offer new mortgages if there is a good EPC rating in a property. So EPCs are also frequently done whenever a landlord is applying for a potential remortgage of a house. This gives landlords a further incentive to have their EPC checks up to date in rental properties especially if they’re applying for a buy-to-let mortgage.

What’s changing with EPC regulations?

In 2025, all new tenants who have assured tenancies will live in properties with an EPC rating of at least a C based on new regulations. So if landlords want to sign any new tenancy agreements they will have to make sure the property complies with these new regulations.

In 2028, this will also apply to all tenancies so if a tenant is signed on for 10 years in an assured tenancy from 2020 for example. The landlord will have to make sure the house has had repairs before 2028 if they want the tenancy agreement to be within the law after 2028.

London homes have the lowest percentage of homes that need updating by 2025 with around 59% of homes requiring improvement compared to almost 70% in Wales.

Are there any exemptions from the new EPC regulations?

A few exemptions will remain for these new regulations where an EPC isn’t needed for the legal function of the building, they include:

• Detached buildings with 50 metres squared of internal floor space
• Grade A or B listed buildings
• Temporary buildings (up for 28 days or less)

Who is responsible for conducting an EPC? The buyer or the seller

The current landlord or seller of the property is always responsible for conducting an EPC. Just like they’ll be responsible for conducting other repairs to do with a property like having landlord electrical safety certificates or gas safety certificates. 

Should you start planning for EPC regulations now?

There are predictions for the improvements to take place linearly over time as the below table shows. However, some experts think there will be a spike in landlords conducting repairs just before 2025. Therefore, it may be necessary to have EPC for rental properties issued as early as you can as a landlord, read on for the reasons why.

Do improvements early to avoid the rush

First of all, rushing around trying to meet deadlines is something to avoid as a landlord, especially when it comes to renovations in a property. Rushed work can cause problems down the line and result in you not being able to get the job done to the extent that you originally wanted.

Therefore you may be left with a disappointing finished product that leaves both you and your tenants unhappy.

Reduce the cost

Basic economics states that with an increase in supply where demand stays the same, material costs will be driven up. As you may imagine, landlords leaving repairs until the last minute as they try to gather the cash could drive up the cost of things like windows, boilers and doors.

On top of this, contractors who specialise in improving the energy performance of homes will be in high demand, like insulation experts for example. They may therefore increase the cost of their labour in order to meet demand and get the highest price for their work. 

Most EPC regulation improvements could start being complied with as late as 2024 and early 2025. Driving up the cost of materials suddenly in this period. So, the earlier you get improvements done, the better.

If you’re still not convinced, fines will be raised to £30,000 from £5,000 if you don’t have a valid EPC certificate by 2025, raising the stakes of not having the right EPC in a property.

Spread the costs out

Landlords will be able to get work done at their own pace by spreading out the cost over years. Getting an EPC done and conducting the repairs slowly over time would result in landlords not having to hike up rents suddenly or worry about meeting deadlines if they budget for it early.

When looking at other costs of a property like electrical safety certificates, this makes sense as the upkeep of a property is expensive anyway so budgeting is very important.

How will the new EPC regulations impact the residential market?

There is no knowing for sure what will happen to the rental market until the EPC regulations get closer for landlords and there is concrete evidence. However, there is a chance the regulations could result in increased rents.

How will the rental market change by 2025?

Most property experts agree that the new regulations will have the effect of increasing rents. Having said this, the demand for tenants to have a high-quality living environment may result in tenants becoming more selective with where they live and result in landlords who do provide good homes keeping their tenants for longer. Having a long-term benefit.

Also, with an increase in rent, we could see different areas of the UK have higher yields and there may be an influx of people looking to buy instead as they realise it is cheaper to take on a mortgage.

However, in order for an initial property purchase, EPC ratings need to be a C for properties so this could push up the price of the property as landlords need to charge more in order to get the home they’re selling to a ‘C’ EPC standard.

Adding to this, the increase in rent may reduce the buying power of tenants to save for a deposit in the first place, reducing their ability to buy. The exact way in which the market will adapt will continue to be debated but ultimately, it is important for landlords to meet regulations first and foremost. 

How do I get an EPC for my rental property?

To start with the process, go to an energy performance assessor and they will tell you what grade your property is alongside any improvements that are necessary to make. Click here to be taken straight to the government website where you’ll be able to search for one based on your postcode.

How much does an EPC cost for rental properties?

The full check of your property may take half an hour to an hour and cost in the region of £50 – £200 depending on the size and scope of the property.

What if I cannot afford to make EPC changes?

Landlords who cannot meet these regulations now or after 2025 will be able to apply for something called an “all improvements made” exemption.

This is where a landlord conducts recommended improvements on their property up to the cost of £3,500 and then once they are able to prove this their building will be able to house tenants or be sold, despite their grade being under the criteria of an E or a C in 2025.

There are also other types of finance available like the green deal finance agreement where you can get a certain amount of money granted to you by the government based on what you expect to save on your energy bills.

This loan is paid back through your electricity bill after the fact and this money can go towards the £3,500 from the “all improvements made” exemption.

In parliament, there are also talks of this £3,500 number being increased to £10,000 so landlords will have to do more repairs out of their own pocket in order to meet regulations and it is harder to write off your property as exempt.

The below table shows the recommended improvements from the DLUHC a landlord can make to their property in the event of their EPC falling below a C to get an idea of costs.

In conclusion

To wrap things up, there is a lot of uncertainty about how the new EPC regulations will play out in the property industry. Having said this, there is a clear demand for the building standards to go up and this will positively impact the experience tenants have as a whole.