Changes to Minimum EPC Standards 2018
What is changing and why?
After a long period of uncertainty, the Department of Energy & Climate Change (DECC) finalised Energy Performance Certificate (EPC) regulation changes in early 2015. The Minimum Energy Efficiency Standards (MEES) mean it will be unlawful to let or lease any commercial or residential building with an EPC rating lower than an E, in England and Wales.
The main aims of implementing MEES are to improve inefficient properties (with either an F or G rating) and to work towards the UK’s energy target of having minimal CO₂ emissions from all buildings in the private rental sector by 2050, as per the Energy Act 2011 .
When are the changes coming into effect?
According to Elements Property , it had been “a long-standing concern of the industry with uncertainty amongst agents, landlords, tenants and energy assessors as to when these changes would come into effect.” However, the government confirmed in February 2015 that the changes to regulation will be coming into effect for new lettings and lease renewals from 1 April 2018. From 1 April 2020, this will be extended to cover all residential privately rented property and from 1 April 2023, it will also apply to all existing commercial leases.
Are there any exemptions from MEES?
As laid out by David Johnston in his article ‘MEES: The legal implications’ , there are three formal exemptions; when the works will not pay for themselves over seven years, when any third party refuses consent needed for the works to go ahead and when the suggested works would reduce the property’s capital or rental value by over 5%. MEES will also not apply if a property does not legally require an EPC under current regulations, or if the tenancy is under six months or over 99 years. However, listed buildings and buildings in a conservation area will not be automatically exempt.
It is also worth noting that MEES will not apply in Scotland or Northern Island; Scotland has different regulations and Northern Island currently does not have any comparable legislation to the Energy Act.
How will this affect the lettings market?
The Guardian  estimates that “almost 10% of England and Wales’ 4.2m privately rented homes currently fall below the E rating.” Elmhurst Energy  also suggest that “as of February 2016… 20% of non-domestic properties have an EPC rating of an F or G, meaning that unless they were upgraded to meet the minimum standards it could be deemed as illegal to rent them.” These figures show the profound effect the change in legislation could have on both residential and commercial rental properties, with potential issues for agents and landlords arising when trying to let a property from April 2018. As well as making it illegal to begin a new rental or renew a lease on a property with an F or G rating, the legislation could also diminish the value of such properties and have a negative impact on rent reviews for properties with existing tenants, therefore limiting the revenue these properties can bring in.
What action should be taken?
Reading and having an understanding of the full legislation  would be a good starting point, as this provides more detail regarding what is required and will help to establish whether any of the properties in a portfolio might be affected or exempt for any reason.
It is necessary to establish whether a property meets the required E rating or falls into an F or G (or is in danger of doing so) as early as possible, to allow time for any potential improvement works to be implemented. As a result of the impending changes, we have already noticed a major increase in EPC orders, with many of our clients wanting EPCs to be carried out across their portfolio to see whether their properties will comply with the legislation. We expect this to continue this year and into the early part of 2018, which could have an industry-wide impact on the cost of EPC surveys, as well as property refurbishment work.
If a property receives an F or G rating, it will be impossible to market until it has been suitably upgraded; improvements to a property’s energy efficiency must be implemented prior to April 2018. Action must be taken now to safeguard revenues from rental properties and to avoid penalties, with the maximum fine for renting a non-compliant property set at £150,000.
If you have any further questions about our EPC services or the upcoming changes, please contact us on 0203 905 60 99.