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EPC Consultation15th October 2020 Commercial Litigation
On 30 September the Government commenced a further consultation setting out its proposals to further raise the minimum EPC requirement for all properties within the privately rented sector to Band C before 2030. This is introduced as part of the Government’s target to reduce all greenhouse gas emissions to net zero by 2050. The new requirement of a band C minimum on an EPC will apply to new tenancies from 2025 and to all existing tenancies from 2028.
As landlords should be aware all rental properties are already required to reach EPC band E or have an excuse for not doing so. The main excuse is that the spend required to meet band E exceeds £3,500. Failure to meet the standard or have an excuse allows local authorities to issue financial penalties. If a property is not meeting the band E requirement it should be registered along with the reasons why it is not at the right standard. However, in practice, there are pretty low levels of enforcement at the current time and most properties, even in the PRS which has lower levels of energy efficiency are meeting the standard.
The new requirement will be far harder to meet. Only good quality new-build properties or those which have had significant upgrades are likely to reach EPC band C. In addition, the new requirements come with much increased penalties for landlords of a maximum of £30,000 per property for each breach. There are also proposals for introducing a private rented sector property compliance and exemptions database, requirement for landlords to provide an EPC before a property can be advertised and prohibiting letting agents and online property platforms from advertising and letting properties which are not compliant with the new rules.
This will be a big change. Moving to band E only affected around 200,000 of the least efficient properties based on government figures. Moving to a band C will affect well over 2 million properties, approaching half the sector (depending on who’s figures you prefer!).
The proposals are that for any property which is on a new tenancy or which is renewed or extended after 2025 will need to meet EPC band C. This will probably mean that tenancies becoming statutory periodic will also need to meet this standard at that point. Given that most PRS tenancies are for a year or less this will also mean that almost all properties will need to meet the new standard within 2026. The remaining properties which are not picked up on renewal or extension, primarily those which were periodic tenancies already and have remained so, will be required to meet the standard by 2028. The second big change is that the cost cap is likely to be increased, possibly as high as £10,000. This is based on the belief that the average spend to reach band C is £4,700. Consideration is also being given to adjusting that cap automatically for inflation.
The approach taken by the Department for Business, Energy & Industrial Strategy in their proposal is difficult to understand as it fails to take into consideration the reality of properties in the UK. There are some new build properties which do not meet the new requirement of a band C EPC and older properties which will never be able to meet it, regardless of the owners’ best efforts and intentions.
The proposal purports to recognise that making the required improvements to a property may be unaffordable for some owners. The consultation paper seeks to remedy this by introducing an affordability exemption which will allow landlords to register the exemption and then not be required to spend more than £10,000 over the following five years. Considering that on the Government’s own figures 10% of landlords have an annual turnover per property of £5,000 or less, limiting their spend on energy performance to “only” 40% of their turnover for 5 years is still a huge ask and will inevitably still prove unaffordable for many landlords.
There is also the question of how to manage the removal of properties from the sector. The BEIS proposals do not recognise that energy inefficiency is unequally distributed. For example, rural areas often have older properties with lower levels of energy efficiency which are also harder to upgrade. There is a risk that there will be drastic losses of PRS property in specific parts of the country with nothing available to replace it.
The consultation remains open until 11:45 on 30 December 2020 and landlords and agents are able to respond to here.
Partner and Head of Department
Commercial Litigation/Corporate Recovery and Insolvency