2018 EPC Regulations: Notes for Landlords

2nd August 2017

2018 EPC Regulations: Notes for landlords

We would all like to be more energy efficient and have warm, comfortable homes that don't leak heat or let in the cold. If you are a landlord, though, you now have a responsibility to ensure that your rental properties are energy efficient. After much consideration, the 2018 EPC regulation amends have finally been concluded, with the changes finalised by the Department for Energy & Climate Change. Ultimately, it means it will be unlawful to let or lease a property (both residential and commercial) that has a poor EPC rating.

When is all this happening?
The regulations change on April 1st 2018 and non-compliance could result in a big fine. The EPC ratings in the changes are aimed at the private rental market, and covers both domestic properties (from one-room studio flats to detached houses) and commercial property including factories and offices. The changes will be based on the CO2 emissions for commercial property, and on fuel costs for domestic dwellings.

What properties are covered?
The regulations apply to non-domestic properties defined as commercial use property types A1-D2 usage. The only exceptions are those which are currently exempt from existing Energy Performance Certificate regulations. Domestic properties are defined in Section 42 of the Energy Act 2011 as 'properties let under an assured tenancy for the purposes of the Housing Act 1998', or a regulated tenancy under the Rent Act 1977. In short, almost any domestic property regardless of size as well as the vast majority of commercial premises fall under the new regulations.

What it means for landlords
Landlords will only be able to let properties that qualify for a Band E rating under EPC regulations. With an estimated 18% of commercial property falling short of this percentage (and tipping over into the band F or even G ratings), there could be a mad rush to make sure properties comply before April next year. The upgrade costs to make sure properties comply with the regulations could run into the millions. Additionally, there is a chance that it will force landlords to compensate for the costs in higher rents, not just for those tenants whose properties have to undergo upgrades, but for everyone. It will also be harder to sell off a property with an F or G rating, as the new regulations could severely affect market value. Therefore, with a diminished resale value and potentially expensive repairs in order, it could be a tough period ahead for landlords.

Exempt properties
There are some properties that will be exempt from the new regulations, where landlords could potentially still let a property with an EPC rating below the required standard. But even if a building does qualify for an exemption, it will only be granted for a period of five years. Therefore, it is really a matter of delaying the inevitable, rather than avoiding it altogether.

Compliance and enforcement
The bottom line for landlords is that they will have to make improvements to a building that deliver energy saving effects that can ultimately pay for themselves within seven years. From lagging pipes to insulating lofts, a lot will depend on the age and condition of the property. Enforcement falls to local Trading Standards Officers and while the penalties have not yet been finalised, non-compliance fines will be relative to the rentable value of the property. That could mean fines of anything between £5,000 and £150,000. Providing false or misleading information could result in a further £5,000 fine.

Making sure you comply
If you are a landlord and are worried about the upcoming changes, the first step is to talk to property experts who can look at your situation in detail. Even if a property does not meet the required standards, it does not necessarily mean that you will encounter a huge bill for energy efficiency upgrades. It needs an expert overview to make sure you are complying with the regulations, but with less than a year on the clock, it is better to act sooner rather than later.

Note: This is not legal advice; it is intended to provide information of general interest about current legal issues.

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