The current Energy Performance Certificate (EPC) regime has been in force for many years. The basic rule at present is that no residential or commercial building can be let to a new tenant with an F or G rating. This is about to change.
The problem with the current regime is that the certificates are based on just one metric. For residential buildings this metric is energy costs. For commercial buildings it is carbon dioxide emissions.
The government considers that this is too simplistic an approach – so it recently launched a consultation on reforms to the EPC regime. This article looks at the main proposals and the overall effect on landlords.
Multiple metrics
Instead of using one headline measure, the government is proposing that EPCs are turned into a collection of different metrics covering the different elements of energy efficiency. There are four different metrics:
- Fabric performance – this will assess the thermal efficiency of the building envelope (ie walls, roof, windows).
- Energy cost – this will predict the running costs of energy use.
- Smart readiness – this will evaluate the building’s ability to integrate smart technologies eg smart meters.
- Heating system – this will rate the efficiency and environmental impact of the heating system.
With regard to the heating system metric, the government is proposing to rank different heating systems with fossil fuel systems at the bottom of the ranking and heat pumps at the top, regardless of the cost of operating that system. It is well known that a heat pump is 4 times as efficient as a gas boiler – but as heat pumps run on electricity and, per unit of power, the cost of electricity is approximately 4 times as expensive as gas, there is little difference in the operating costs of both systems. This mis-match between efficiency and the actual cost to a tenant is one of the key issues which needs to be resolved
Reducing Validity Periods
The current validity period of an EPC is 10 years but this will be reduced. In the consultation, periods of 7, 5 and even as little as 2 years are proposed between assessments.
Continuous Requirement
Under the current rules, as long as there is a valid EPC in force at the beginning of the tenancy, there is no need for a landlord to obtain a new certificate until that tenant has vacated and the property is re-let.
It is proposed that this rule will now change so that a property will be required to have a valid and continuous EPC.
Extensions to Other Properties
The scope of EPC will be widened so houses in multiple occupation, holiday lets as well as listed and heritage buildings will all be required to have a valid EPC prior to letting.
Exemptions
There will continue to be a range of exemptions including costs, third party consent requirements and property devaluation.
EPS Standards and Enforcement
The government is proposing a range of measures to reform the standards of assessment, accreditation and enforcement which they hope will improve the overall reliability of the process.
Fines for non compliance will also increase with variations for residential and commercial property. The maximum fine for failing to obtain an EPC on a residential property will be £400; and on a commercial property the maximum fine will be £10,000. If there are other breaches of the MEES (Minimum Energy Efficiency Standards) Regulations, then the penalties will be much higher.
Issues for Landlords
For landlords, the proposed changes must be viewed as a “tightening of the ratchet”. The days of the quick and inexpensive wins to secure a valid EPC are over. The government’s aim is for all rented residential buildings to have a C rating by 2030. For commercial buildings the aim is higher – to achieve a B rating by 2030. Whilst these are aims and governments change course regularly, the direction of travel is clear.
It is also possible that once the above changes are introduced, a property’s EPC rating will go down and not stay the same. The grandfathering of existing certificates to the new regime is also part of the proposals so landlords would be well advised to renew their EPCs under the current regime before the new rules come into effect.
It remains to be seen whether the new rules will produce a better system or just a different system. For landlords, the proposed changes will simply mean increased costs and substantial expenditure on their buildings.
