The King’s Speech contained few surprises in relation to the government’s agenda for housing and leasehold reform as the majority of the proposals have been in the public domain for the last four years. However, confirmation that the government is scrapping its plans to require homeowners and private landlords of domestic property to have an energy performance certificate rating of C from 1 April 2025 represents a major U-turn in government policy to improve energy efficiency in our private rented housing stock.
What’s new?
The government has effectively ruled out further regulatory measures in the rented domestic sector at this time, though has stated that it remains committed to decarbonising as many homes as possible “where practical and cost-effective.” It is planning to publish a consultation by the end of 2023 for the owner-occupied sector. Its aim will be to gather evidence on how to “achieve this in a fair, proportionate and affordable way” for homeowners.
The government has also promised (by the end of the year) a response to its consultation on incentivising mortgage lenders to help homeowners improve energy performance. The government has identified lenders as being uniquely positioned to influence energy performance improvements in the UK property market. The consultation – Improving home energy performance through lenders – was originally published in 2020 and considers a target-based approach for improving the energy performance of lenders’ portfolios.
The government also addresses the calls for reform of domestic EPC metrics to make them better suited to informing consumers as recommended by the Committee on Climate Change. It has promised yet another consultation in the months ahead to ensure that EPCs “are more reliable, accurate and considered as trustworthy sources of information for consumers, as well as providing a solid foundation for other energy performance policies.”
The trajectory for raising the minimum energy efficiency standard of commercial property still remains something of a mystery. However, a nugget of information was published in the government response to the Committee on Climate Change Progress Report 2023. Towards the end of the response is a short statement which indicates that the government has reviewed the responses to the 2021 consultation – Non-domestic private rented sector minimum energy efficiency standards: EPC B implementation – and is in the process of reviewing the policy design to ensure that it remains fair for both landlords and tenants and reflects the changing policy landscape. Apparently, we can expect that response in “due course”.
What next?
It’s safe to say the government has acknowledged that the proposed timeline (EPC rating of C by 2027 and EPC rating of B by 2030) will have to be updated in order “to allow sufficient lead in time for landlords and the supply chain.”
At least this provides some clarity for landlords and tenants but it still leaves us none the wiser as to what the new policy proposals might be. The commercial property sector faces an enormous challenge to address energy inefficiency. Current estimates are that close to 90% of current office space has an EPC rating of C or below and approximately 1bn sq ft of space in the UK below a B rating. It is also estimated that around 60% of UK warehouse space will not achieve a B rating come 2030.
Despite the lack of clear government policy guidance, it is evident many property owners are proactively carrying out a review of their portfolios to look at EPC ratings and programme energy efficiency improvements.
If improving the rating is not going to be possible, it is likely that landlords will have to fall back on one of the exemptions in the Minimum Energy Efficiency Standard Regulations. However, an exemption is not a long-term solution as it only lasts for five years. It is a temporary fix. There are also still questions around the enforcement of the regime by local authorities. Practical challenges and a lack of resources makes enforcement difficult and time consuming. When the government response is finally published it will need to clearly address these points.
One fundamental issue remains which underpins the entire basis of the MEES regime and that is the fact that the EPC does not measure metered energy consumption and associated carbon emissions. That will depend on how well the building is being maintained and how efficiently energy is used in the building in real time. Therefore a high EPC score is no guarantee that a building will be operationally energy efficient and release less carbon as a result. It appears that a building’s EPC score could actually bear no resemblance to its energy and carbon performance.
As a consequence, the government had announced plans in 2021 to introduce a national performance-based policy framework for assessing energy use and carbon emissions in commercial and industrial buildings above 1,000 sq m in England and Wales, with annual ratings and mandatory disclosure as the first step.
But this initiative appears to have been pushed down the track following confirmation that the government has paused its roll-out of the operational energy rating pilot scheme. While the government states that it remains interested in exploring how to incorporate operational energy use it has said that it “needs to review how such a scheme would function within the policy landscape for commercial and industrial buildings”.
Either way, the clock is ticking towards the UK net zero emission target by 2050 and further action is needed, especially as the property sector will require investment to upgrade commercial buildings in the UK if it is to play its part in achieving net zero.
Alison Murrin is an expertise counsel in the real estate team at Ashurst
