Impact of Energy Performance Certificate (EPC) reforms

The UK rental market is facing an uncertain situation and might have to deal with serious challenges to comply with the proposed Energy Performance Certificate (EPC) reforms. All leading property firms and professionals alike have raised concerns about the impact of these regulations, particularly on smaller landlords owning a few properties.

Energy efficiency targets outlined in the EPC reforms

Landlords, especially those with older properties, would have to make significant investments in their portfolios to meet the energy efficiency targets outlined in the EPC reforms. The uncertainty regarding the extent of these investments is causing concern within the UK living real estate sector otherwise known as the property industry. All this comes when there is added pressure on landlords due to rising interest rates and rising energy prices. The worry is how much EPC improvement costs will be pushed environmental consciousness through to higher rents as landlords seek to cover the costs of necessary EPC improvements.

A key issue we all raise is the lack of clarity and certainty surrounding these reforms. The private rental sector seeks a clear plan and financial support to facilitate these improvements. However, as of now, the details remain unclear. The government's efforts to improve energy efficiency in rental properties is a laudable goal. Still, some of the proposed changes simply are not practical, affordable, or even desired by tenants. The stakeholders believe private sector landlords are already taking steps towards environmental consciousness, such as implementing low-carbon heating systems and improving insulation where workable and cost-effective. However, their concerns are not being heard, let alone effectively addressed.

One important concern is the apparent regulation disparity between the private rented sector and owner-occupied housing. While private landlords are facing EPC targets, there are no minimum energy efficiency requirements for owner-occupied homes, I viewed this as discrimination in the housing market.

Recent Changes to EPCs

Recent changes to the methods for assessing Energy Performance Certificates (EPCs) in the UK mean landlords will have to make significant adjustments which will impact property ratings. These changes also have far-reaching implications for both residential and commercial buildings. More substantial transformations are anticipated in the coming years, with significant changes expected in EPC assessments by 2030.

Standard Assessment Procedure (SAP 11) for domestic properties, set to be enforced in 2025

The government is working on a new version of the Standard Assessment Procedure (SAP 11) for domestic properties, set to be enforced in 2025, alongside the Future Homes Standard. A report commissioned by the government outlines 25 recommendations for SAP 11, including improvements to the method.

RICS Decarbonising UK real estate report 2022

A report by the Royal Institution of Chartered Surveyors (RICS) published in November 2022, titled Decarbonising UK real estate, offers suggestions on how EPCs could be calculated, presented, and utilised.

What new measures or metrics are proposed by the RICS to reform EPCs?

Will energy use and carbon emissions feature in EPC reforms?

The RICS recommendations include:

- presenting three main metrics

1. Final energy use,
2. Carbon emissions, and
3. Energy cost.

The intention being that these can be measured against specific policy objectives.

The RICS also propose introducing four additional metrics such as:

1. Fabric energy efficiency,
2. Space heating demand,
3. Peak energy load, and

on-site renewable generation capacity.

This would provide a more comprehensive evaluation of building performance. Further fundamental reforms are recommended, including regular updates of EPCs and using a new metric that accounts for broader benefits from low-carbon heating systems.

Potential changes for large Commercial and Industrial buildings

Industry bodies are also promoting potential changes for large commercial and industrial buildings of over 1,000 square meters. The government is considering a performance-based policy framework for these structures, including performance-based assessments, annual ratings, and mandatory disclosure.

The uncertainty and potential financial burdens posed by the EPC reforms are causing apprehension among landlords, particularly smaller ones with limited property portfolios. The rental sector is seeking clarity and support to navigate these changes while striving to maintain affordable and energy-efficient homes for tenants. Property owners and stakeholders should stay informed and adapt to these changes to ensure compliance and make informed decisions about their properties.