Will Minimum EPC ratings of B come into force?

EVORA

Before we consider EPC B ratings becoming minimum standards, let us explore where we are today.

Minimum Energy Efficiency Standards were introduced on 1 April 2018. Buildings cannot be leased with an EPC worse than an E rating. There are exemptions, notably, a seven year payback rule exists. Landlords can continue to lease buildings with F or G ratings if they can prove that energy savings from improvements cannot payback within seven years. The exemption only lasts for five years, has to be registered on-line, and it does not transfer to new owners.

Has this piece of legislation made a difference? Yes.

Whilst it is flawed, (are based on calculated rather than actual performance and the gap is too big) it has focused the industry’s mind. Refurbishments have needed to achieve more sustainable design choices in order to meet the minimum EPC standards. It is very unlikely that a real estate investor will now acquire a building without considering EPC ratings. EPCs of F and G often result in a red flag during due diligence– unless the acquisition plans to focus on redevelopment or major refurbishment.

In my experience, the introduction of minimum energy efficiency standards has had an impact – far from seismic, but an impact none-the-less.

As a minimum, landlords are considering EPC risk and working out how to improve performance at asset and portfolio level.

Future Changes

In October 2019, the Government consulted on proposals that would tighten non-domestic minimum energy efficiency standards to set a long-term regulatory target of EPC B by 2030, or the highest EPC band a cost-effective package of measures could reach.

The Government has recently issued a further consultation – which closes on 9^th June 2021 – focusing on implementing a future minimum standard of EPC level B. Below, we explore some of the key points:

The Government has confirmed a future trajectory of minimum EPC rating of B by 2030.
This will be phased in with an interim minimum rating of EPC C by 2027.
There is a proposed move away from enforcement at the point of let, to a temporary 6-month exemption to address the challenges of compliance for shell and core premises
There is a proposed obligation on letting agents and on line platforms to only advertise properties compliant with future regulations
There is a recognition that enforcement needs to be stronger
There is a recognition that exemptions need to be tightened and plans for introduction of a standardised payback calculator.
The government also recognises and highlights the importance of using smart meters to monitor energy performance – although EVORA recognise this will not improve EPC ratings directly.

Conclusions

Whilst it is a consultation, EPC B ratings – as a minimum – are on their way.

The UK Government has made significant climate change commitments. It needs legislation to help drive progression.
Buildings contribute significantly to carbon emissions in the UK. Action across the real estate industry must be taken to help achieve commitments.
The need to address climate change risks is increasingly obvious.
EPCs however, flawed, provide a measurable approach.

In EVORA’s opinion there is a need to ensure that modelled energy (through EPCs) and actual performance is also thoroughly addressed.

If you would like to discuss the EPC ratings in your buildings, you can get in touch with our experts at [email protected]

The full consultation document can be found here: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/970192/non-domestic-prs-mees-epc-b-future-trajectory-implementation.pdf