Despite the existence of energy performance certificates (’ EPCs ’) and the minimum energy efficiency standards for properties that were brought in in 2015, these measures have never really had ‘teeth’ nor have they been effective to help the government to enforce its climate goals.
Recently, the government acknowledged that the current EPC regime needs to be reformed so that it is actually fit for purpose and has now given a signal that more stringent rules are to be introduced.
A new approach to residential EPCs
The most far-reaching reform concerns EPCs for residential property. The current EPC will be replaced by four main metrics designed to give a more rounded picture of a home’s energy performance, energy costs, building fabric performance, smart readiness, and heating system efficiency and emissions. Alongside these new measures, the existing carbon metric will be retained, but a new ‘energy demand’ metric will also be introduced.
The idea is that the updated measurements will capture the full picture of a property’s energy performance and provide a comprehensive assessment of potential energy efficiency measures. For example, fabric performance will be assessed based on features such as wall insulation, loft insulation, and double or triple glazing.
Smart readiness will evaluate whether a property is equipped with a smart meter that enables occupants to monitor and manage their energy use.
Heating system efficiency will assess the carbon intensity and operational effectiveness of boilers, heat pumps, and hot water systems.
The reforms will allow any potential buyer to have a much better understanding of a property’s energy efficiency and the likely energy costs.
When will the new residential EPC take effect?
The government has stated that its aim is to introduce these style residential EPCs from October 2026. This is not widely publicised, but should be so that landlords and homeowners have time to consider what upgrades and improvements they want to make and to instruct the relevant works in time for October 2026.
Commercial EPCs
Unlike residential property, for commercial property, the carbon metric on the current EPC is to be retained and will be the single metric for commercial EPCs. However, commercial building owners should not rest on their laurels and rule out capital expenditure on their buildings, particularly in light of the intended MEES reforms.
What changes are going to apply to all EPCs?
One of the most immediate changes is the removal of the 28-day grace period for obtaining an EPC, meaning you will need a valid EPC in place before you can market a property for sale or letting.
What about listed and heritage buildings?
The government also intends to remove the current exemption for listed and heritage buildings, meaning they will also fall under the requirement to have an EPC. Historically, those buildings have been exempt from EPCs and MEES requirements where compliance could compromise the building's historical character. It is widely thought that bringing listed or heritage buildings within the scope of the MEES legislation is likely to be very costly for their owners. To reflect this, the government has acknowledged that recommendations on EPCs will take into account the unique characteristics of listed and heritage buildings, as well as the need to introduce a ‘negative impact’ exemption. Effectively, this exemption will combine the existing ‘devaluation’ and wall insulation ‘exemptions’.
How long with EPCs be valid for?
The government has confirmed that the 10-year validity period for EPC’s will be retained, although there was some suggestion in the consultation that there should be a shorter life span.
What changes are coming for the MEES regulations, and what rating must a building have in the future?
Under the current regime, commercial properties that are required to have an EPC cannot be let if they are rated F or G, or unless a valid exemption has been registered. It is not enough to qualify for an exemption; a building owner must have actually registered the exemption for it to be valid and to bring the building outside the MEES regulations.
With regard to residential property, it is now clear that, as from 1 October 2030, all new and existing lettings of privately rented residential property must have an EPC rating of C or higher, and the government has confirmed that a similar timetable will also apply to socially rented homes. This places a heavy financial burden on local authorities or housing associations, who may now need to timetable and consider how they are going to pay for significant energy improvement upgrades to their property stock.
However, the position regarding commercial property remains uncertain. Originally, it was thought that, based on the 2021 consultation, commercial properties would have to have a minimum EPC rating of C by April 2027 and B by April 2030. It is now expected that a minimum EPC rating of B will be introduced for commercial property at some point between 2030 and 2035, but the government has not confirmed whether it will require an interim C rating.
This leaves commercial building owners in an unsatisfactory position, not knowing whether an upgrade from the current E rating to a C rating will be required and, if so, by when. The jump from an E rating to a B rating could be considerable and extremely costly for landlords. It is still widely reported that a significant proportion of the private rented sector falls below the EPC C threshold, meaning that, to meet the legal requirements by 2030 in relation to residential property, substantial work will have to be done across the property sector. There needs to be an uptick in the amount of insulation, glazing, heating system replacements, and the installation of renewable technologies in those properties.
The fact that there is still some uncertainty over when the current EPC E rating is going to be upgraded to either B or C, also causes commercial landlords concern because they are not able to plan properly in terms of when they may want to spend significant capital sums on the property and/or when works may need to be coordinated to chime in with lease termination events and ingoing tenants.
Landlords cannot, however, afford to simply ignore the EPC and MEES requirements because, in the case of a residential property, non-compliance with the EPC and MEES requirements means they face a fine of up to £5,000 per property and for commercial properties, the penalties are even larger and up to £150,000 for larger buildings.
So what should building owners do now?
A prudent building owner should :
- Ensure that for any property stock, there is an EPC certificate currently in place
- Diarise the expiry date, and if any exemptions are in place, log the date they need to be renewed and the supporting information that will be required
- Identify the properties most at risk of future non-compliance, obtain quotes for improvement works, and plan for budgeting and paying for those works well in advance of any deadlines.
This information is for guidance purposes only and does not constitute legal advice. We recommend you seek legal advice before acting on any information given.
