Why landlords need to worry NOW about energy efficiency

The government has recently announced new targets to cut the UK’s carbon emissions by 78%  by 2035.  

This is a massive target and will involve big changes in energy efficiency and the way we live our lives. 

Even so, scientists tell us that this target is not tough enough – meaning that the 78% target is more likely to be strengthened than relaxed – if we are to retain any credibility on the world stage.

But how is that target going to be achieved and how will it affect landlords?

Energy Efficiency Ratings

At the moment all properties must have a minimum energy efficiency rating of E.  Otherwise unless there is a valid (and registered) exemption, your property cannot be let or you will be vulnerable to fines and prosecutions. 

However, this standard is almost certain to go up to C.  The current proposals are that a minimum energy efficiency rating of C will take effect

• For new tenancies from 2025, and
• For existing tenancies from 2028

Also:

• The landlord maximum investment cap will go up to £10,000 per property, and
• The maximum fixed penalty charge is likely to rise from £5,000 to £30,000

The energy efficiency rating standards will also be enforced via:

• A new database for all rented properties
• Council’s being given the power to inspect properties
• Giving tenants powers to request improvements and the right to claim damages where landlords are in default
• Requiring post improvement EPCs, and
• Agents and online platforms being unable to advertise non-compliant properties

This is all serious stuff.  I would therefore recommend that landlords take this very seriously indeed and put in place immediate steps to implement improvements.

The problem with EPCs

Landlords obligations regarding energy efficiency standards are channelled via their properties EPC rating and recommendations.  However, there are criticisms of the current standards and recommendations made.

At present most seem to recommend gas central heating, which is bonkers as gas is a fossil fuel.  We should be banning it rather than recommending it – indeed under building regulations, gas heating will be banned for new properties after 2025.  So why is it still recommended by EPCs?  

I suppose two reasons are that the gas infrastructure is in place and that gas heating is so much cheaper than electricity.  Which then begs the question, why is it so much cheaper?

Electricity is becoming increasingly greener over time with new wind farms and solar farms coming on board.  Surely we should be encouraging electricity use rather than making fossil fuels such as gas cheaper and therefore more attractive?

Another change in our tax system which needs to be implemented urgently, as I discussed in my post here.

Energy efficiency – what’s in it for me?

Another problem that deters landlords from carrying out expensive works is that they will benefit the tenants rather than the landlord.  

However, landlords have to face up to the fact that these new rules are coming in whether they like them or not, and that they will need to comply. 

One way for landlords to directly benefit from lower heating bills is to provide accommodation with bills included.  This is popular with tenants as it helps them budget. It should also prevent the problem of tenants changing suppliers during the tenancy.  

Whether or not landlords rent properties with bills included, they should be able to charge a higher rent once improvements have been done as these properties will then be much more comfortable for tenants to live in and therefore more attractive.  Another bonus.

As opposed to the fines and inability to advertise properties via the platforms that landlords will face if properties are not upgraded to the proper standard, in the coming years.

So what things will you need to do?

Energy Efficiency – Insulation

The government will be promoting ‘fabric first’ improvements, and indeed all the advisers say that you need to deal with the structure of your property first before you move to things like innovative heating systems. 

So this means proper insulation – making sure that the property does not leak heat in the winter.  Although this needs to be done carefully so you are not left with properties that are too hot in the summer.

Shamefully, the government’s green homes grants scheme has been scrapped, but you may still be able to get a local authority or other grant aid for this work. 

Hopefully, your supplier will be able to help you source any grant funding which is available.  There is a government guide here which has some helpful links.

Issues with insulating property walls

So far as wall insulation is concerned, this can either be external or internal. 

The problem with internal insulation (which may be the only insulation possible if planning restraints forbid you from altering the appearance of your property) is that it is quite thick and will reduce the internal size of your rooms. 

Which may have implications if these rooms are bedrooms.  Particularly if your property is an HMO where there are minimum bedroom sizes. 

For these rooms, it may be worth using one of the more expensive thinner insulation products on the market.

Energy Efficiency – Heating

This is where problems lie as EPCs currently recommend gas heating whereas this is almost certain to be banned in residential properties in future years.  

The other options include

• Electrical heating systems
• Solar heating
• Heat pumps, and
• Wood burning stoves

There are problems with all of these. 

• Electricity is more expensive than gas, and is currently not recommended in EPCs
• Many properties are not suitable for solar heating (although this may change as the technology improves)
• Heat pumps are often found to be unexpectedly expensive and again are not always suitable for a property. 
• Everyone loves a wood stove but we are now told that they can be bad for our health.  And they contribute to air pollution.

So the best thing may be to concentrate now on insulation and leave changing the heating system for a few years.  By which time, hopefully, things will have clarified and any changes to EPCs will have taken effect.

The problem with protected tenancies

These standards will apply to all tenancies, but there could be a big problem with Rent Act protected tenancies. 

At present these tenants are entitled to a ‘fair rent’ (assessed by the government’s valuation office agency rent officers) which is inevitably lower than market rents.  Landlords cannot normally increase these more than once every two years.  Even then the amount of increase is limited to about 10% under the Maximum Fair Rent order from 1999.

The only way these rents can be increased to reflect the market rent is after substantial improvements have been made to the property.  However, most tenants object strongly to improvements as if this leads to a rent increase it will make the property unaffordable for them.  Most protected tenants are elderly people on fixed incomes.

So it is likely that many if not most protected tenancy landlords will be unable to carry out improvement works as the tenants will refuse to let them in.

I’m not sure what approach government will take to this. 

• Will landlords be expected to get these works done notwithstanding tenant objections?  Maybe by going to court to get injunctions for access?  In which case, if the works are done and the rent increased, many frail and elderly people will end up in serious rent arrears and vulnerable to eviction. 
• Or will landlords be let off the hook if protected tenants refuse access, perhaps on the basis that these properties only form a relatively small proportion of our housing stock? 

We shall have to wait and see.

Why you need to start NOW

In view of the climate pledges made by the government, these new standards are on their way and landlords will need to comply.  Despite the loss of the green grants scheme, I would recommend that, if they can, landlords start now, if only by taking advice and developing a plan of action.

One of the big problems we have is a scarcity of suitable tradespeople. So getting work done earlier may avoid the inevitable problems we are going to have later in finding suitable people to do the work.  So maybe in that context, it will be better to pay a little more now to avoid the possibility of fines later on – when getting a suitable tradesperson may become impossible due to everyone getting work done at the same time.

A plan of action

It’s always a good idea to have a plan so here are some suggestions:

• Take advice – although advice services seem to be fairly thin on the ground.  Your EPC assessor may be able to help, and you may also be able to get advice from organisations such as the Energy Savings Trust, the Centre for Alternative Technology, the Green Building Council and (if you are feeling really ambitious) the Passivhaus Trust.  Most of these organisations offer training.
• Speak to your tenants – for example, if they are looking to leave at the end of their fixed term, you can schedule your works to be done then.
• Work out a plan. Even if the work can’t be done now, if you know what needs to be done and who can do it, this will help you later.
• Source and book tradespersons – as discussed, this should probably just be for insulation issues at the moment
• Read and keep up to date with developments – we will publish posts here from time to time, as will landlord organisations such as the NRLA and the other various bodies in the RPS such as Arla Propertymark.

If you have any experience in these matters and have any recommendations for landlords please leave a comment in the comments section below.