Watt’s next for the minimum energy efficiency standard regime?

The government has recently announced the ‘Warm Homes Plan’ which is a wide-ranging initiative aimed at cutting household bills and allowing households to take advantage of clean energy. As part of this programme, the government has also published their response on last year’s consultation process as a result of which we now have clearer guidance on the timeline and changes anticipated in the Minimum Energy Efficiency Standard (MEES) regime that seeks to encourage (and enforce) energy efficient home improvements in both the public and private rented sectors.

In terms of the timeline for proposed implementation of EPC reform and higher MEES for privately rented homes, legislation is expected to come into force in 2027 which will require domestic rental properties in England and Wales to have an EPC with a minimum ‘C’ rating by 1 October 2030 (unless the property has a valid exemption). This rating will be assessed under a revised EPC assessment and methodology adopting alternative metrics aimed at increasing landlords’ discretion as to how they seek the necessary improvements. Although the published response outlines the government’s framework for domestic properties only, there are some useful pointers as to the approach that may be under consideration for non-domestic properties.

The framework

The current regulations require all domestic rental properties to have a minimum EPC rating of ‘E’, however when enacted, under the new regulations a property must achieve at least a ‘C’ rating by 1 October 2030.

A property with an EPC rating of ‘C’ or above using the current methodology will be considered compliant until that EPC expires. Although there is no change to the current 10-year validity period for EPCs, consideration had been given to possibly shorter EPC validity periods for lesser rated properties so as to encourage more frequent review of rating and possible improvement works.

Any new EPCs commissioned after 1 October 2029 will be assessed against the new metrics.

The landlord must meet both of the new metrics but has an element of discretion in one – the Fabric Performance Metric (FPM) is compulsory for all assessments, but the second metric introduces a choice of either the Heating System Metric (HSM) or the Smart Readiness Metric (SRM).

The FPM measures the building’s ability to maintain a different temperature to its surroundings. Factors to be considered in this metric are the building’s insulation, window quality and air-tightness (as at present).

For the other assessment metric, the landlord can choose between the HSM or the SRM – whichever metric works best for the property to achieve its highest rating. The HSM refers to a system with high efficiency and low carbon emissions (such as an electric heat pump), whereas the SRM system would be one that creates its own energy (such as solar alongside a smart meter).

The intention is that this dual metric approach is to give landlords a choice and not “punish” those with gas boilers that are functioning well (and producing cheaper bills for tenants), but at the same time, encourage those who choose to invest in low carbon solutions (like heat pumps) regardless of impact on bills.

New exemptions

It is clear that the government understands that the system needs both stronger enforcement as well as meaningful and fair exemptions to work.  There are a number of proposed changes to the current exemption system that support landlords in the event the property fails to meet the required standard.

These include:

• A new £10,000 cost cap on the expenditure that a landlord may be required to incur with any expenditure from 1 October 2025 counting towards the cost cap.
• An “affordability” exemption – if the property value is below £100,000, the £10,000 cost cap will be adjusted to be 10% of the property value.
• A “solid wall insulation” exemption – responding to the well-publicised concerns of poorly or inappropriately installed installation under earlier schemes, the landlord may choose not to install solid wall insulation and claim an exemption.
• A new “negative impacts” exemption – combining the existing devaluation exemption and the existing wall insulation exemption, this provides a category which may particularly help landlords with unusual or heritage buildings where there is evidence that the improvements would negatively impact the landlord’s property.

Existing exemptions under the current scheme will remain; including those where all relevant improvements have been made to the property and there are no more improvements possible; and third-party consents cannot be obtained.

Enforcement and penalties

The financial penalties for landlords who do not comply will be significantly increased from a maximum £5,000 per breach (for domestic properties) to £30,000.

As the penalty structure is per breach, repeated breaches or multiple non-compliant properties could have significant financial implications. The increased penalties are also paired with expanded investigatory powers for local authorities to inspect properties and actively monitor compliance.

The government are also considering, although have not yet confirmed, giving the Local Authority powers to publicly disclose landlords who don’t comply with the new regulations.

Conclusion

The financial and insurance industry have driven changes in landlord behaviours over the last few years in the absence of legislation, and we expect this to continue in the next few years in advance of the announced changes.

In light of the new guidance, landlords can now plan with greater certainty and take a strategic approach to compliance. Many may seek to update and obtain a fresh EPC ahead of the methodology change and benefit from as long an EPC validity as they can.

A clear understanding of the new regulatory landscape is essential for all landlords who let residential properties.

How we can help

If you would like to discuss how these changes may affect your properties, or to explore further resources, please get in touch with our commercial real estate team.