Will your EPC B ready for 2030?

One limb of the government’s strategy to bring greenhouse gas emissions to net zero by 2050 is to target privately rented non-domestic properties and to bring the ratings of these properties up to an EPC B by 2030. A 2019 consultation identified that the main challenges to hitting this target centred on compliance and enforcement issues. The latest consultation, published on 17 March 2021, considers the current difficulties, and suggests proposals to ensure that the targets are met and that landlords continue to invest in the quality of their buildings. Views are requested by 9 June 2021.

Background

Since 1 April 2018 there has been a requirement that a private rented property must be at a minimum of an EPC E rating if it is let on a new tenancy (including renewals) and this will apply to all privately rented properties (even where there has been no change in tenancy) from 1 April 2023. These minimum energy efficiency standards (MEES) are set out in the Energy Efficiency (Private Rented Property) (England and Wales) Regulations (MEES Regulations). The government confirmed in the Energy White Paper that the future trajectory for non-domestic MEES will be EPC B by 2030, which is estimated to cover around 85% of the non-domestic rented stock. This particular consultation focuses on the implementation issues that need to be addressed to amend the MEES Regulations to make sure that this happens.

Issues

The consultation identifies the following as issues that need to be addressed:

• Enforcement of the policy should be improved.
• The MEES Regulations do not currently work well for sectors that frequently rent buildings / units in a shell and core state.
• The MEES Regulations currently place the whole regulatory obligation on the landlord, which does not encourage a collaborative approach between landlords and tenants to making energy efficiency improvements.
• The MEES Regulations could work better for older buildings.
• The implementation of the seven-year payback test could be improved.

Proposals

The government sets out three proposals to counter some of these issues and make the framework more effective:

1. Set an EPC C requirement by 2027 as an interim milestone. This shouldn’t be taken as a requirement to first improve the property to a C then improve to a B, but rather that the landlord should invest in the improvement of the building in a way that is most cost effective and minimises disruption to it and the tenants. The idea is to incentivise landlords to take action well in advance of the 2030 deadline.
2. Introduce two-year “compliance windows” which will begin with the requirement for landlords to present a valid EPC and end with an enforcement date for each EPC target (by which time landlords must have improved the property to the relevant rating or have a valid exemption). So, for EPC C the Government proposes the compliance window should be 2025-2027, and for EPC B 2028-2030. Exemptions for all properties would also have to be reviewed at the start of each compliance window.
3. Move away from enforcement at the point of letting to address the difficulties of a landlord not being able to lease the building until it has reached the minimum standard, currently of an EPC E. This causes difficulties for a property let in a shell and core condition or where a tenant fit-out is required. For example, it is proposed that a tenant must have occupied the property for a minimum of six months before the local authority can take action against the landlord for failing to meet its MEES obligations. This, it is suggested, would allow landlords and tenants to work together to ensure compliance and avoid the need either for tenants to pay for a fit-out before they legally become tenants or for a landlord to install measures that will be immediately replaced.

Comments on these three proposals are invited as well as views on where improvements could support the transition from the current EPC E requirement to the proposed new implementation and enforcement framework.

Reform

The government proposes to support this framework with reform in the following areas:

• The introduction of a PRS Exemptions and Compliance database operated by a third party to provide the data that local authorities will require for enforcement and compliance monitoring (including a registration fee for landlords). This is intended to allow for simpler compliance checking and to simplify the process and reduce the administrative burden on local authorities. A one-off database registration fee of £30 per property is suggested with consideration given to whether there should be a maximum total registration fee for landlords with very large portfolios.
• Updates to the penalty framework to enforce the new requirements (with £5000 suggested as the maximum limit for non-compliance in certain cases, retaining the maximum fine of £150,000 if a property is let in breach of the regulations) and possibly clarify the current regulations in relation to enforcement for non-compliance. One of the consultation questions relates to the ability of a local authority to give notice to landlords that they wish to inspect the properties for compliance to strengthen their enforcement powers.
• Non-domestic EPCs will follow the proposed domestic changes, such as the requirement for non-domestic rental properties to continually have an EPC and the need to commission a post-improvement EPC to demonstrate compliance.
• The “three quotes” system for the seven-year payback will be replaced by a more efficient and user-friendly “payback calculator”. It is clear that the current requirement to obtain three quotes is creating undue burdens on both landlords and market supplies which is why the consultation suggests a calculator based on actual industry data. There may be certain circumstances where the three quotes requirement is kept - this is open to the views of respondees.
• The introduction of tenant obligations to take on a share of responsibility for MEES compliance and introduce duties of mutual cooperation for landlord and tenant. This would necessitate new primary legislation and the consultation seeks views on whether that would be desirable.

Smart meters

The final part of the consultation considers the roll-out of smart meters. The government is scoping out the role of landlords in helping to deliver this, and the pros and cons of a voluntary versus regulatory approach.

Next steps

It is expected that the government will publish its response in late 2021 and that amendments to the MEES Regulations will come into force on 1 April 2025. It remains an ambitious target, but one it is hoped will reduce emissions across the commercial rental building stock.

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