EPC and MEES reforms seek to tackle fuel poverty and continue ‘net zero’ real estate drive

However, the proposed increase to minimum energy efficiency standards (MEES) required to let private residential property in England and Wales being consulted on, together with the proposed reforms of domestic Energy Performance Certificates (EPCs), introduce complexity for landlords. The proposed increased MEES standards would apply from 2028 for new tenancies and from 2030 to all tenancies.

Landlords and tenants should take the opportunity to share their views on the proposals ahead of the 2 May 2025 deadline for doing so. Doing so will give them the best chance of ensuring the new regime is fair and workable. The scale of the proposed reforms to residential EPCs and MEES create tricky transition issues which all stakeholders need to consider.

The context for the proposed reforms

The push towards reducing greenhouse gas emissions in the real estate sector has been delayed by years of inertia by policymakers. The consultation is a long overdue step aimed at meeting UK carbon reduction targets. The consultation also addresses the issue of fuel poverty, reflecting the government’s statutory duties to fix a fuel poverty reduction target and implement plans to achieve this. The last target set envisaged as many 'fuel poor homes' as reasonably practicable being upgraded to an EPC C by 2030.

In tandem with the MEES and EPC consultation, the government published a consultation on its review of the fuel poverty strategy and target. That consultation closes on 4 April 2025. Importantly, the government sees a link between private rented housing and fuel poverty given that the highest rates of fuel poverty, at 24%, are found in the residential private rented sector.

With government figures putting greenhouse gas emissions for residential property at 16% of total UK emissions and with the impending 2030 UK emissions reductions targets, progress towards the necessary regulatory changes to achieve the dual goals of reducing emissions and fuel poverty is long overdue, and there is welcome evidence of a linking from the government on how their MEES proposals will work in the context of the December 2024 consultation on the proposed significant reform of EPCs.

Our view

Plotting the best way through the reform of residential EPCs with new multiple metrics, proposed to take effect in the second half of 2026, together with increases in residential MEES, is not easy and may have been left in the 'too difficult' pile since 2020.

Trying to increase MEES standards without first fixing the underlying problem of residential EPCs not delivering the right outcomes in terms of reducing greenhouse emissions would simply kick the can further down the road at a time when scientists warn that the window for limiting global temperature increases to 1.5 degrees Celsius or even 2 degrees Celsius is closing.

The increased urgency in dealing with both these matters at the same time is welcome but does create some complexity.

The proposed changes to residential EPCs are to move away from the existing metric of an energy efficiency rating which measures simply the modelled cost of energy required for heating, cooling, hot water and fixed lighting in a property and which results in higher EPC ratings for fossil fuel heated properties.

The EPC reform consultation proposes four headline metrics for future residential EPCs being fabric performance, heating system type, energy cost and smart readiness.

This proposal for multiple EPC metrics will enable more targeted policy interventions, as the proposed MEES changes demonstrate. Whilst we don’t yet have any indication of how these multiple metrics will translate into EPC ratings, a look at the recent response of the Scottish government to its EPC consultation, which also confirms the use of multiple residential EPC metrics and includes an initial design of a new residential EPC, perhaps provides an indication of where we are heading in England and Wales.

Main proposals for residential MEES

Against this background, the main proposals for higher MEES requirements in the consultation are:

• That the MEES for private rented sector residential property should be set at higher levels than currently from 2028 for new tenancies, including renewals or extensions to an existing tenant, and from 2030 for all existing tenancies;
• That the basis for higher MEES would not be the energy cost metric in new EPCs but rather “a combination of the proposed other EPC metrics” aimed at “reducing energy bills without penalising the uptake of low carbon heating systems”;
• That, for the higher MEES, the government’s preference is a standard set primarily on the basis of a fabric performance metric and then on a secondary standard which the landlord could choose based on either a smart readiness metric or a heating system metric, with the cost cap applying to the combined standards so that expenditure should be first to meet the fabric standard and only when that reaches the required standard within the cost cap, would further expenditure on improvements to meet the chosen second standard be required;
• That the current cost cap exemption from MEES compliance be increased from the current level of £3,500, to achieve an EPC E, to £15,000 to achieve the higher standard. Against 2024 modelling, the government estimates this would cost, on average, between £6,100 to £6,800 to achieve the proposed new MEES standard.

This cost cap increase is above the £10,000 cap proposed in the 2020 consultation. However, where the £15,000 cost cap is reached without improvements leading to compliance with the MEES standard, the exemption which could then be registered would last for 10 years as opposed to the current five-year cost cap exemption. It is proposed that expenditure on relevant improvements from the date the new MEES regulations are laid in parliament, planned for 2026, would count towards the cost cap to encourage early action to meet the higher standards. The government’s preferred approach is to exclude the possibility of subsequent automatic increases for inflation in the cost cap.

The government is also seeking to avoid an exodus of landlords from the private rented sector due to the increased cost cap. To achieve this, an ‘affordability exemption’ is proposed. This would limit required expenditure to £10,000 and last for 10 years. Views are sought on the fairest basis for this and suggestions include basing it on a rental level, council tax band or local authority area-based approach.

Pending clarity on EPC reform and what future EPC’s may look like, this consultation does not include the specific proposed standards any increase in MEES would require. This is because the government cannot yet define or propose standards based on unknown EPC metrics. However, indications are that a standard in some way equivalent to a current EPC C is intended.

The government’s preferred approach of adopting a ‘fabric first’ approach to higher MEES standards is what was recommended by the UK Green Building Council in its net zero carbon roadmap. This would have the dual benefit of reducing energy demand, and hence emissions, while reducing fuel poverty. The alternative approaches the government suggests would provide landlords with more flexibility on whether to prioritise fabric performance, smart readiness or heating type standards, but there is concern that that flexibility comes with the risk that packages of sub-optimal works are done.

In its consultation, the government has not entirely ruled out basing higher MEES standards on the existing energy efficiency rating, an energy cost rating, basis. It said doing so would at least contribute to fuel poverty targets.

However, until electricity and gas prices are rebalanced or until the perception that heat pumps lead to higher energy costs is addressed, there is a risk that cost-of-living concerns might derail the government’s efforts to make residential EPCs and MEES fit for purpose in terms of carbon emission reductions.

The proposals need to be considered in the context of different parts of the residential letting market. For instance, as my colleague Natalie Harris points out, in the ‘build to rent’ (BTR) sector, if new build BTR properties meet the proposed MEES fabric standard, which many are likely to do, then under the proposed MEES reforms, it would seem the proposals would mean that BTR operators would be required to do works to meet either a smart readiness standard or heating type standard. These requirements, she said, may be difficult to meet. Standard transfers by housebuilders on single family transactions, often contain prohibitions on external works which would prevent the installation of solar PVs unless consent is given, often without requirements to act reasonably.

In relation to the heat system metric, we continue to see new BTR projects utilising gas heating – particularly in the single-family space where older housing estates are still being completed or where there are grid capacity concerns. Harris said that, depending on tenancy terms, a resident may need to consent to works to install low carbon heating during the term of a tenancy which, given the current higher cost of electricity, they may not wish to do. In that event a consent exemption could be registered.

Transitional provisions

In the context of the reform of EPCs planned for the second half of 2026 and the proposals that new MEES standards apply to new tenancies from 2028 and all tenancies from 2030, there is uncertainty now for landlords on what the new MEES standards will be until EPC reforms are clear. In the meantime, landlords with possibly limited void periods need to try and plan relevant improvement works for prospective MEES compliance. However, the government has laid out a timetable which should help to minimise this period of uncertainty.

For instance, a government response to the EPC reform consultation is expected this year, as is a consultation on the new methodology for residential EPCs and a response to the current MEES consultation. Assuming the sequencing of these is in this order, landlords should have some greater, but not complete, certainty on EPC metrics and MEES standards by the end of 2025.

In addition, the government aims to publish the new methodology for residential EPCs in 2026, with all new EPCs to use the new methodology from the second half of 2026. Landlords can also expect confirmation of the new MEES standards and which metrics they will be based on in 2026.

When the EPC reforms are introduced in the second half of 2026, because those reforms propose always including a new requirement for an EPC when a property is let, where current form EPCs have expired during ongoing tenancies, new form EPCs under the new methodology will be required which will need to comply with current MEES requirements. To cover this situation, it is proposed that compliance with the current EPC E MEES could be via the energy cost metric which is proposed to be included in the new form EPC. Where the new form EPC cost metric does not meet an EPC E standard then government is considering allowing compliance with the existing EPC E MEES via the expired EPC.

To encourage improvement works pending the new form EPCs, existing form EPCs with at least a C rating will be deemed to satisfy any increased MEES standard until the existing form EPC expires or is replaced. Whilst this will not encourage decarbonisation, it will contribute to reaching the 2030 fuel poverty target and will give landlords of these properties potentially until 2036 to meet the higher MEES standards, assuming, as is proposed, current form EPCs remain valid for 10 years.

The government has also indicated what will happen where a current form EPC in place at the introduction of the new form EPCs is not at least a C rating. In that scenario, when MEES requirements increase, the landlord will be required to commission a new form EPC to ensure MEES compliance works, or that any exemptions are based on the new form metrics. The cost of the new form EPC will count towards the MEES cost cap.

These proposed transitional provisions, assuming the given timelines are met, should enable landlords between now and the first half of 2026 to carry out works to achieve a current form EPC C rating or above which would then satisfy the increased MEES standards. Better still, it would allow them, from the time the new MEES standards are clear from regulation laid in parliament in 2026, to carry out works to meet the new standards based on the new fit-for-purpose EPCs and MEES knowing their expenditure will count towards the cost cap in the new standard.

Landlords should also take account of the fact that the zero rate of VAT for the installation of energy saving materials is due to expire on 31 March 2027.

Ancillary proposals

Short term lets

The EPC reform consultation proposes extending the requirement for an EPC to short-term lettings. The MEES consultation similarly proposes extending MEES requirements to such lettings. This is proposed to avoid landlords moving into the short-term lettings market to avoid increased MEES requirements, and to ensure a consistent standard applies to residential let property.

Exemptions

Views are sort on whether the existing MEES exemptions are appropriate and whether new exemptions should be created. However, no proposals have been outlined on either of these issues. The only proposal made is to simplify the six-month exemption for new landlords by making it apply to all new landlords regardless of how they became the landlord.

Letting agents

The 2020 consultation proposed that letting agents should only be able to advertise properties which complied with the MEES requirements. The government has proposed to leave this on hold pending development of a private-rented sector (PRS) database, which would enable letting agents to check for MEES compliance.

Enforcement and maximum fines

The maximum fine for non-compliance with current MEES obligations is currently set at £5,000. Against a cost cap of £15,000, this does not represent a deterrence. The 2020 consultation proposed an increase to £30,000 per property for future higher MEES standards, which the government supports. Further detail of how this would work will be required in any further regulations.