Hello readers,

Following the introduction of the mandatory EPC Band E, which was introduced on 1st April 2018 for domestic and commercial rental properties, you may be aware that the government is currently consulting about bringing the minimum rating to an EPC Band C and potentially even EPC B.

Whilst I know you will certainly agree that promoting energy efficiency is a positive thing to do, it is concerning that, once again, it appears to be landlords who will be required to foot the bill for improvements to properties including, ironically, ex-council houses!

Furthermore, with most properties in Ashford being Victorian or older, it is unlikely that they can be brought up to Grade C (or B!) without incurring significant cost. This could lead to a mass sell-off of rental properties as landlords choose to cash in and invest elsewhere.

What is proposed?

The Government initially entered consultation on 30th September 2020 with a closing date of 30th December 2020, however the deadline was extended to 8^th January 2021. In short, the proposal for domestic rental properties is to increase the mandatory EPC rating from grade E to Grade C (potentially Grade B) by 2030.

The proposals outline a substantial penalty of up to £30,000 which can be levied by the Local Authority against landlords who do not comply. The proposals also include a recommendation for agents and portals to be banned from listing properties that do not meet these standards.

There is a proposal for the maximum cost for single improvements to be increased from £3,500 to £10k and this means that landlords are potentially exposed to many thousands of pounds of cost.

Key proposed dates are:

• 2025 – All new tenancies to be minimum EPC C
• 2028 – All tenancies to be minimum EPC C

What is concerning, however, is that the proposals float bringing forward the requirement for new tenancies to be EPC C by 2023 and all tenancies by 2025! The document does, however, note that:

‘earlier compliance dates would also mean less time for landlords to plan and save and may also be an unreasonably short timeframe to develop the necessary capacity in the supply chain.

I can’t see these dates happening given that no outcome has been published, but nothing surprises me any more! Also, I cannot figure out how the headline is for 2030, but the dates proposed reflect 2028!

The consultation has closed, and the Government is currently analysing the results before publishing any further decisions. The challenge is, however, that 2025 is not all that far away! There is currently no date for the government to publish its findings.

And one final point to note is the proposal for net-zero carbon emissions by 2050!

What does this mean for landlords?

The Government proposal claims that this will bring ‘significant benefits to landlords…’ as it will reduce energy bills, deliver carbon emission savings, and lead to ‘potential property value improvements…’.

How positive to hear that the Government is so kind as to consider benefits to landlords (!).

Unfortunately, contrary to this sentiment of empathy with landlords, the actual impact for landlords will be yet another increase in cost.

If we look at the costs, the average capital investment required is £4,700 per property to attain an EPC Grade C, however, the NRLA comments that the average net annual rental income is less than £4,500 per property.

Proposals point towards grants being available, however, we have seen the catastrophic failure of the Green Homes Grant Scheme and although there are grants of £5,000 to replace gas boilers with greener systems such as heat pumps, the total cost of doing so could top £18k! In addition to this, heat pumps are widely known for not being as effective as gas boilers.

What should landlords be doing?

It is, on the whole, positive that there is to some point ‘safety in numbers’, so I’m hopeful that a realistic funding scheme will be made available. However, what should landlords be doing to prepare for whatever the outcome is?

• Get an up-to-date EPC – Getting an updated EPC report could highlight that your property is, actually compliant
• Put an action plan in place – Assess your portfolio and plan out the cost to bring each property up to both EPC C and EPC B along with how you will fund it
• Review your rents – Have your rents kept up with market rates? If not, perhaps it’s time for an increase to help fund improvements. After all, they should be saving money on energy bills
• Review grants available – There may be an ECO grant you could get access to. It might be worth considering sooner rather than later (and installers predictably inflate prices!)
• Keep up to date – Keeping your eyes on the press and updates from the consultation will mean you don’t miss any important announcements
• Be more selective when purchasing – Take EPC improvement costs into account when purchasing new properties

In closing, two final points to consider are enforcement (I don’t know how Ashford council will physically enforce every rental property EPC) and, a potential curveball… the Government is reviewing EPCs themselves (full details here).

I would be interested to hear your thoughts on these proposals. Whilst I completely agree that more energy-efficient properties are a good thing, the funding of works needs to be better thought through.

As usual, you are welcome to get in touch with me via LinkedIn and I will be happy to answer any questions that you may have.

Hasan