The current rules

In 2015, new laws set Minimum Energy Efficiency Standards (MEES), stating that private rented property in England and Wales must have an EPC rating of E or above. These came into force on 1 April 2018 for new tenancies, and on 1 April 2020 for existing tenancies.

However, there are several exemptions, which you can register for at prsregister.beis.gov.uk.

Firstly, there is a maximum cost cap: currently £3,500 per property, including VAT (and including outside funding such as grants). If after spending this amount on improvements, the property still doesn’t meet the minimum EPC rating, you can register an exemption.

Other exemptions include where work would damage or devalue the building (with evidence from a qualified surveyor), or where you cannot get necessary third-party permission (for example from a tenant, planning authority or freeholder). Exemptions are valid for five years. There is also a temporary 6-month exemption for new landlords.

What’s changing?

In autumn 2020, the government began a consultation on tightening the MEES rules. It’s important to note that the proposals are currently just that, and no regulations have even been drafted yet. The consultation closed in January 2021, but the results have still not been published.

However, the main proposed changes are as follows:

• Minimum EPC rating to be raised from E to C.
  The plan is to enforce this from 1 April 2025 for existing tenancies, and from 1 April 2028 for new tenancies.

• Cost cap to be raised from £3,500 to £10,000 per property
  The government says this would be sufficient to bring more than 90% of D-rated properties up to a C rating, as well as nearly 60% of E-rated properties. It’s not clear whether existing spending would count towards the new cap.

• “Fabric first” policy to be introduced
  This would control in which order work is carried out, so improvements to the fabric of the building (ie insulation, windows and doors) must be done before additional measures such as new heating systems are installed. 

The exemptions would remain largely unchanged. Additionally, the proposals recommend clarifying the rules for listed buildings and those in conservation areas, and introducing a central database of compliance and exemptions.

Don’t delay

There are good reasons to start planning now.

1: Beat supply shortages

When new rules are announced, there is likely to be a rush to book tradesmen and order materials, further increasing lead times and prices. 

2: Spread the cost

By starting now, you can spread the cost rather than suddenly facing a large bill just before the deadline. This will also give you more time to seek additional funding, such as grants.

3: Increase flexibility

The “fabric first” principle, if approved, would restrict what work you could do. For example, if you want to upgrade the heating system, you might be unable to do so until you have improved insulation or replaced windows. If you can get the property up to a C rating now, then these measures will not affect you.

Why upgrade?

You may feel that the last thing you need is the prospect of more expense on renovation work. However, there are clear benefits to boosting your EPC rating:

1: Add value

When other factors are excluded, properties rated B and C sell for around 5% more than those rated D.

2: Reduce bills, increase rent

In simple terms, if tenants spend less on energy bills, they can afford to pay you more rent. Lower bills will also make it less likely that your tenants get into arrears. Plus, of course, a warm and comfortable home means happier tenants.

3: Protect your property

Keeping a property warm and dry will tend to make it less prone to condensation, damp and mould. (Not all insulation measures are suitable for all properties. Take professional advice.)

Investment opportunities

While it’s easy to focus on the negative aspects of increased regulation, there are also ways to capitalise on the coming changes.

1: Find newer property

In areas with lots of older properties that are hard to upgrade, there could be a significant exodus of landlords, leading to a shortage of rental properties. Look beyond obvious rental stock and consider more modern energy-efficiency properties. Although the initial outlay is likely to be higher, you’ll be well placed to find tenants when the supply shortage bites.

2: Look for cheap fixes

With well over 2 million PRS properties in EPC band D, in many cases it might not cost much to reach the C rating. For example, 41% of PRS housing with cavity walls doesn’t currently have insulation in the cavity. Similarly, more than a third of properties with lofts lack proper insulation. 

Put together, these two measures could put the rating up one or even two EPC bands at a cost of less than £1,000.