Landlord Requirements: Are you ready to ‘Green’ your Portfolio?

Landlord Requirements are set to change. It will become increasingly important for property investors to consider the ‘green’ credentials of their property portfolio. For some time, we have been highlighting that environmental efficiency should be a primary consideration for investors as they look at different property investments.

Until now, it has just made good sense to do this from a future-proofing perspective. However, it is increasingly likely that if investors own properties that do not meet minimum environmental standards, they will be forced to contend with high retrofitting costs.

The UK is likely to lead the way to introducing environmental standards for rental properties.

Current Standards

Currently, landlords in the UK are regulated by the Domestic Minimum Energy Efficiency Standards (MEES) Regulations, which set minimum requirements for residential properties that are rented. These are specifically:

  • All residential properties are required to have an Energy Performance Certificate (EPC)
  • Since 1 April 2020, landlords can no longer let properties that have an EPC rating of F or G. (A being the highest / best EPC rating).
  • If landlords own a property which is let with an EPC rating of F or G they are required to immediately take action to improve the energy performance of the property to at least an EPC rating of at least E

At the moment, if a landlord owns and rents a property that has an EPC rating of F or G they are not required to spend more than £3,500 (including VAT) on energy efficiency improvements. Full details can be found at the UK Government website here.

Potential New Landlord Requirements

In a sign of things likely to come, discussions have circulated in the media at the COP26 climate change conference which suggests the UK government will soon introduce new rules to prevent landlords from renting out property that has an EPC energy rating of D or below.

Information we are hearing at suggests these changes are likely to be introduced in 2025.

What does this mean for Landlords?

For landlords renting newly built property or property that has been built relatively recently, it is unlikely that a significant amount of remedial action will be required. This is because most new build property in the UK typically exceeds EPC performance rating C.

However, this situation is likely to be a much more significant concern for landlords who own an older property, particularly for older Victorian property, which is notoriously difficult to improve energy performance ratings for. Changes and retrofitting required are likely to include:

  • Insulating the property (in the roof and walls)
  • Installing solid floor insulation
  • Replacing existing windows to double glazed windows
  • Replacing older boilers
  • Replacing any gas appliances with more energy efficient electric appliances
  • Fitting car charging stations
  • Solar water heating
  • Installing low energy lighting
  • Draught proofing.
Victorian Houses.  Landlord requirements to meet likely new standards are likely to be high

What will it cost landlords?

In the past, the UK government has set limits on how much landlords will have to pay to retrofit their properties and bring them up to standard. It is far less likely that in the future any limits will be set on these costs. The government is under significant pressure to meet climate targets and it seems unlikely that those who own investment properties will be at the top of the list of people the government wants to help.

According to the UK government website, the costs to improve energy efficiency are likely to be in the region of the following.

Recommended measuresIndicative Cost (£) – LowIndicative Cost (£) – HighTypical Annual Savings (£) p.a.
Room-in-roof insulation1,5002,700837
Wall insulation4,00014,000195
Floor insulation4,0006,000122
Hot water cylinder insulation1530142
Draught proofing8012018
Low energy lightin2021
High retention storage heater1,2001,800319
Solar heating4,0006,00057
Double glazing3,3006,500123
Solar photovoltaic panels5,0008,000287

It is not difficult to imagine a situation where landlords could be required to spend tens of thousands of pounds simply to rent their property legally.

Early Signs of Change

There are early signs from those in the ‘know’ of what is set to come.

Many landlords in the Registered Provider market (social landlords who let affordable property to those who qualify to occupy it) have already started selling up those parts of their portfolio that do not meet minimum energy requirements.

Many larger Registered Providers have already sold significant parts of their portfolio and are taking advantage of favourable market conditions.

Why are landlords choosing to sell rather than upgrade?

Simple, cost. The reality is, in the wake of supply chain shortages, build price inflation and shortages of contractors, the cost of this retrofitting work is rapidly increasing.

For all but a few landlords, it is simply more economically viable to sell their property whilst favourable market conditions exist and replace it with newer property.

What should you do?

If you are a landlord and own older property now is very much the time to start thinking about what your strategy should be for your existing property.

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