An important Government consultation affecting the property industry was published in February, looking at the Minimum Energy Efficiency Standards (MEES) for residential properties.
We are still waiting for an equivalent consultation on commercial properties. The Government is focusing on the domestic sector first, to reduce carbon emissions and tackle high levels of fuel poverty in private rented buildings. This goes hand-in-hand with the Government's wider reforms to improve standards in the private rental sector – see our latest update on the Renters' Rights Bill.
The previous Conservative Government launched a consultation in September 2020 which proposed raising the minimum grade for residential properties from grade E to C in two phases: by 2025 for new tenancies; and then by 2028 for existing tenancies. These proposals were shelved in 2023, apparently due to the financial implications for landlords, and there were no further announcements prior to the general election.
Last December, the Labour Government published its plans for grade C by 2030 for private rented homes. The details have now been fleshed out in the new consultation, along with a long-awaited response to the 2020 consultation.
Phased implementation
The Government is sticking with grade C for the new minimum grade. This would apply to new tenancies from 2028 and existing tenancies from 2030.
EPC metrics
The Government also launched a separate consultation at the end of last year on energy performance certificates (EPCs) and is proposing to reform the metrics for EPCs.
EPCs for residential properties are currently based simply on energy costs. The Government plans to introduce new metrics next year, based on fabric performance, heating systems, smart readiness and energy costs.
Once the new metrics are introduced, if the property is a C grade or higher, the landlord would be able to rely on the existing EPC until it expires. However, if the property is a D grade or lower, the landlord would be required to commission a new EPC to ensure they meet the higher standard under the new metrics.
Cost cap
There is currently a cap of £3,500 per property on the cost of the landlord's works. If the landlord has spent this amount on improvements and the property still does not meet the required energy standard, the landlord can register a five-year exemption.
The 2020 consultation proposed raising this cap to £10,000. The Government now plans to increase this to £15,000. Given the large uplift, it is proposing that the exemption would last for 10 years. This still seems a considerable sum, particularly as there is limited funding available to landlords to help with the cost of works.
Affordability exemption
The Government is, however, considering whether an affordability exemption should apply, which would lower the cost cap to £10,000 in certain cases. Factors such as the amount of rent or the council tax band of the property may be taken into account.
Holiday lets
The consultation proposes bringing short-term lets, such as holiday lets, within the scope of MEES. This is to discourage landlords switching from standard rentals to holiday lets in order to avoid the cost of energy improvements.
Mishcon comment
According to the Government, 16% of total greenhouse gas emissions in the UK come from homes. It is clear that action needs to be taken to tackle this and to improve the standard of many private rented homes. However, at a time when rental properties are already in short supply, beefed-up MEES rules may exacerbate the plight of many renters if landlords are forced to increase rents or even to sell their rental properties. The consultation closes on 2 May 2025.