It’s Hotting Up for EPCs
2nd August 2017
Over the last couple of months I have been to a number of seminars on EPCs (Energy Performance Certificates) and MEES (Minimum Energy Efficiency Standards). EPCs have been around for a number a years and, if I am being honest, the attitude in general towards them has been very blasé; they have been seen by landlords and vendors as an unnecessary burden to facilitate a sale or letting.
In April 2018, this changes. From this point on it will be unlawful to let a building with an EPC rating of less than an E. On top of this, you will also no longer be able to complete a lease renewal. The penalties will hit landlords in the pocket as they will be based on a percentage of the rateable value and will range from a minimum of £5k up to a maximum of £150k, depending on the duration of the breach. It is understood that Trading Standards of the relevant District Council will enforce this.
MEES also has its flaws.
Firstly, the minimum standard is based on an EPC rating, but EPCs are renowned for their lack of correlation to actual energy performance of the property.
EPCs are linked to building regulations, so as building regulations get tougher, so does the ability to achieve the required rating, making MEES a moving target. It has been suggested that EPCs produced pre-2011, if remodelled now could be up to two ratings lower.
The quality of EPCs carried out can throw out the ratings. EPC ratings can come out lower where assessors have used default settings rather than inputting the correct information; put simply, human error.
How does this impact properties owners? I am finding they fall into two categories.
BLIND PANIC – Worried about cost, loss of rental income, the inability to let their property, risk of large financial penalties
CROSS THAT BRIDGE WHEN THE TIME COMES – relaxed, deal with the issues when I need to do it.
So where do I sit as a managing agent? In truth I am somewhere in the middle. I believe there is no need to panic, but adopting a relaxed attitude is not going to be the smartest move.
Preparation is the key. It is understanding the property and the current leases, understanding MEES and also communicating with your tenants and putting in place an appropriate management strategy to ensure the impact of MEES is kept to a minimum.
There has to be a behavioural change. MEES has the potential to adversely impact key value drivers including occupancy, rental growth, and yield on any sale. Bank Valuers are also now instructed to comment on EPC/MEES in any secured lending reports, which could influence the availability of finance or mortgage lending. Sitting on your hands is no longer an option and with April 2018 just around the corner, a clear management strategy needs to be put in place NOW.