Almost 15 years ago when Energy Performance Certificates (EPCs) were first introduced, there was widespread speculation that they would be as short-lived as the badly executed and unpopular Home Information Packs they were once a part of.
The EPC was a requirement of the EU Directive on the Energy Performance of Buildings (EPBDs), introduced in response to the Kyoto Protocol; an international treaty (with binding targets for greenhouse-gas reductions), extending the 1992 United Nations Framework Convention on Climate Change. The treaty was signed by nearly all nations at the 1997 Earth Summit in Kyoto, Japan, essentially the COP26 of its day.
An EPC has been a legal requirement for residential and commercial property in England, Wales, and Northern Ireland since 2008, and in Scotland since 2009 whenever a property is built, sold, or rented. It is valid for 10 years and gives a property an energy efficiency rating from A (most efficient) to G (least efficient).
An accredited assessor will need to assess your property and produce the EPC certificate. However, the assessor will generally only evaluate what can be seen without estructive investigation, or proven with relevant documentation. Therefore, without evidence, walls that have been insulated and then skimmed over wouldn’t be considered in the assessment, but boilers, windows and light bulbs would.
If you are using a selling agent, they will usually arrange the EPC on your behalf, but it is important to be aware of the requirements and the potential pitfalls.
The requirements
- Sale of residential property
• You will need an EPC within seven days of a property being marketed for sale. - Rental properties
• If you are renting a residential property, from 1st April 2020, all tenancies, not just new ones or renewals require a minimum energy efficiency rating of ‘E’ or above.
• From 2025 all new rental properties and tenancies will need an EPC rating of ‘C’ or above, with all tenancies from 2028; a jump of two grades from the current minimum.
• Landlords with properties for rent, with an EPC rating of F or below (G), can carry out the recommended works to a cost of up to £3,500 (inclusive of VAT) in order to achieve the required rating, or potentially apply for a high-cost exemption. - Commercial property
For a commercial property, you will need an EPC in the following scenarios:
• You rent out or sell your premises.
• A building under construction is completed.
• Changes are made to the parts of the building for separate occupation (such as additions to heating and ventilation systems).
Exemptions
From January 2013 there has been an ‘exemption’ for listed buildings. However, the exemption is qualified, and states: “Insofar as compliance with certain minimum energy performance requirements would unacceptably alter their character or appearance” and you should need to get advice from your local authority conservation officer.
Other buildings that do not need an EPC include:
• places of worship.
• temporary buildings that will be used for less than 2 years.
• stand-alone buildings with total useful floor space of less.
than 50 square metres.
• industrial sites, workshops and non-residential agricultural buildings that do not use a lot of energy.
• some buildings that are due to be demolished.
• holiday accommodation that’s rented out for less than 4 months a year or is let under a licence to occupy.
• residential buildings intended to be used less than 4 months a year.
Help available
• Landlords may be able to make careful use of the repairs, maintenance and renewal allowance to reduce the overall costs of replacing fixtures such as boilers with more energy efficient models. However, improvements related to energy efficiency may be deemed capital improvements, and not revenue, and therefore not eligible for tax relief, other than on sale.
• Improvements such as installing double glazing and up-to- date boilers would be allowable under repairs, maintenance and renewals.
• Corporate entities that rent properties can now apply for grants to contribute towards the cost of installing Electric Vehicle chargers. It provides up to 75 per cent of the cost towards the purchase and installation of a socket, limited to £350 per grant. Landlords can receive up to 200 grants a year for residential properties, and a further 100 for commercial properties.
• Mortgage companies are likely to offer favourable loan deals for improvements that increase energy efficiency to help them meet their own green financing targets.
• The chancellor announced measures that came into force on 1 April 2022, which introduced a time limited zero-rate VAT relief that applies to the installation of energy saving materials (“ESM”) in residential property in England, Wales and Scotland.
Given the rising costs of energy and the government’s target that all homes in Britain will have an EPC rating of C or above by 2035, an “eco-friendly” EPC rating is now one of the most desirable features in a new home. However, there is a lack of clarity on cost effective ways to rise up the EPC ratings, as much of the assessment relies on a level of judgement, rather than science as they are restricted to what can be determined without detailed investigation.
The reality is Britain’s old and poorly insulated housing stock is a major obstacle in the government’s efforts to reduce greenhouse gas emissions. Direct and indirect emissions from homes accounted for 16% of the country’s total emissions, according to the Climate Change Committee, and direct emissions from households overtook the power sector for the first time in 2018. According to the Building Research Establishment Trust, “The UK has the oldest housing stock in Europe, and most likely in the world,” with many dwellings of relatively poor construction quality”, making them expensive to heat.
Actions to consider
• Get an EPC rating so you can establish your position.
• Compare the EPC of your property with similar properties through the governments free ‘Find an energy certificate’ service https://www.gov.uk/find-energy-certificate.
• Get advice to understand what needs to be done to improve your rating and time any work with your builder to coincide with when a tenancy is coming to an end.
• Establish what grants or funding may be available.
• Get professional advice to ensure work is completed in the most tax efficient way to maximise reliefs available, for example you may wish to spread the work over several tax years.
• Sell now before the EPC issue becomes a barrier for you! In a challenging economic environment, with rising costs and a shortage a good quality builders, potential purchases purchasers may well will steer clear of properties that need improvement.
Find out more
If there are any topics raised in this Knowledge Post that you would like to talk to us more about, please do get in touch.
