Introduction
Energy efficiency has become a major consideration in the lettings and property management industry in the UK. With growing concerns about climate change and the need to reduce greenhouse gas emissions, the UK government has implemented various regulations to improve the energy performance of rental properties.
One such regulation is the planned Minimum Energy Efficiency Standards (MEES) of EPC C+ for rental properties, set to come into effect by 2028. In this blog post, we will explore what property managers need to know about complying with the planned MEES of EPC C+ for UK rental properties.
What are MEES Requirements for Rental Properties?
Minimum Energy Efficiency Standards (MEES) were introduced in 2018, and they require that rental properties in the UK meet a minimum Energy Performance Certificate (EPC) rating of E or higher. The UK government has plans to further raise the bar for rental properties in the near future. Planned regulations mean that from 2028, rental properties would need to achieve an EPC rating of C or higher by 2028 to comply with MEES.
An estimated 57% of private rental properties currently have EPC ratings below C, and will be directly impacted by the regulations as without action, they will be illegal to rent out. The owners of properties which cannot be upgraded for less than £10,000 will need to prove that they have spent this amount trying to achieve the standards, and then apply for an exemption. For the average landlord, who owns 1.9 properties, the bill could be £19,000, significantly higher than average savings in the UK of £9,633[1].
Why do letting agents need to plan ahead for Minimum Energy Efficiency Standards?
The timeline for the introduction of MEES of EPC C+ is yet to be finalised. However, as a letting agent, there are benefits for you from preparing now, and costs to delaying action, including:
Avoid loss of revenue - letting agents who fail to take action risk losing clients and revenue as c. 57% of their properties on average will be illegal to rent out from 2028. Communicating with landlords early ensures there is enough time for landlords to save up for this extraordinary cost, rather than risking a potential cash flow crunch, or worse, illegality, and fines of up to £150,000.
Avoid unnecessary stress - since many letting agents manage hundreds or even thousands of properties, it’s helpful to start prioritising their portfolios and dealing with ‘low hanging fruit’ now. For example, if you manage a portfolio of 500 properties, you might have 50 tenants vacating their properties each year. When the tenants vacate and a landlord plans to refurbish anyway, it can help to be able to offer to implement retrofit measures at the same time, reducing disruption to future tenants, your and your landlords’ cash flows alike.
Minimise the impact of labour shortages and rising labour/material costs - identifying suitably qualified local tradespeople and project managers early can help to avoid the high stress and labour shortages experienced when Electrical Installation Condition Reports became a legal requirement. Many letting agents still shudder at the memory of EICRs, since most waited until the legislation was in place to take action. A big rush to comply created unnecessary stress arranging access and electricians. The costs of hiring qualified electricians rose by over 20% in a few months. What is coming under MEES is far more complex and costly, involving not just electricians but multiple trades - from windows installers to gas safe engineers - many in short supply. In addition, the costs associated with MEES are far higher.
Why should letting agents get ahead of the game on MEES?
There are positive reasons for getting ahead of the game:
Capture revenue from upgrades - By proactively contacting landlords, you are more likely to capture additional one off revenue from instructing tradespeople. It’s likely that you will also be able to earn additional ongoing revenue, since in many cases, rents are thought to increase by up to 15% based on higher energy efficiency ratings.
Hire or train the best teams - By understanding the work required in their portfolio - how many and which properties will need work - you can understand future hiring and contracting requirements and identify top quality candidates before the rush.
Future proof your business - Being ahead of the pack enables you to future proof your business by maximising the time and resources dedicated to getting your portfolios compliant.
What do letting agents need to do?
The first step is to understand your portfolio today. By getting a snapshot of EPC grades, expiry dates and likely vacating dates, it’s easy to begin to prioritise and deal with the lowest hanging fruit. Most of the letting agents we are working with didn’t know the scale of the problem in their portfolio, and would need to allocate 4-5 minutes per property to identify and record details of problem properties. Our EPC portfolio review could therefore save a letting agent with 500 properties 42 hours (c. 6 days).
Secondly, you need to communicate early with landlords: what planned MEES mean for them, what measures are needed in their specific properties, what exemptions and grant funding are available and how to access them, and what to do if the landlord doesn’t want to, or simply can’t afford to do the work. Most letting agents we work with do not have spare capacity to research the regulations and landlords’ options in detail, let alone to draft comprehensive communications for their landlords. Our property reports and guidance therefore save letting agents an estimated 20 minutes drafting and sending property-specific communications to each client. For the letting agent with 500 properties under management, of which 57% are below EPC C, this would save 95 hours (14 days). In addition, our property reports can be recharged to landlords above their cost, leading to additional revenues - for the portfolio of 500 properties, this would equate to additional net revenue of £8,265.
Thirdly, it’s about offering comprehensive support to your landlords to ensure they can make the upgrades needed to continue to legally rent out their property. This includes everything from administrating exemptions where relevant to helping landlords understand what grant funding is available to them. We’re able to save letting agents a further 30 minutes per property by automating this support - for the portfolio of 500 properties we would save 142.5 hours or 20 days.
In short, taking action early and working with specialists in this planned legislation can pay off through time saved, additional revenue captured and stress and risks minimised.
[1] https://www.raisin.co.uk/newsroom/savings/better-saving-money/
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