Full report
The EPC Annual Landlords Survey 2024 – Residential
Introduction
In its drive for the UK to reduce carbon emissions and reach net zero by 2050, the UK Government has imposed new guidelines meaning many landlords now find themselves having to make a range of improvements to their rental properties.
From April 2023 all residential and commercial properties leased will need an Energy Performance Certificate (EPC) rating of ‘E’. Do UK rental properties currently meet these requirements? And what impact will their implementation have on commercial and residential landlords?
A year ago we conducted a survey to investigate how ready UK landlords were for the Government’s new Energy Performance Certificate (EPC) guidelines, with the results showing that many were ill-prepared for the changes. 12 months later, results from our 2023/24 survey show that many residential landlords still have no budget or plans in place to meet the required standards.
But how has the overall picture changed in the past year?
And how do you compare to other landlords?
Heather Powell, Head of Property & Construction discusses some of the initial results from this year’s survey.
Awareness of EPC rules
Knowledge of the EPC rules in both the commercial and residential sectors has improved since 2022. The 2023/24 survey shows that all commercial landlords are aware of the new EPC rules, and only 20% of residential landlords say they are not aware of the proposed new rules.
Is this because the demand for residential accommodation still hugely outstrips supply, whilst commercial landlords have to deliver top quality offices in order to attract tenants?
It appears to us that the demands of tenants is driving improvements in the commercial sector, whilst in the residential sector legislation is going to be essential to improve the energy efficiency of the UK’s homes.
100% of commercial landlords are aware of the EPC rules in 2023/4, compared to 80% in 2022
80% of residential landlords are aware of the EPC rules in 2023/4, compared to 63% in 2022
Planning ahead
When asked if they had plans for making changes to meet EPC rules, the answer for commercial landlords is clearly ‘Yes’ (100%). However the split for residential landlords is far more even, with almost a quarter still answering ‘No’ (22%).
Landlords letting out flats and houses have no problems letting their properties and therefore have no commercial need to undertake works to improve their energy efficiency.
The increased interest rates and past changes in tax regime mean landlords who own properties in their own name do not get full tax relief for the interest charge. This generates a cash crisis for landlords, and no drive to improve the energy efficiency of their properties.
We asked – Have you got a plan for how you will make these changes?
| Yes, and I’ve already started: | 22% |
| Yes, but I haven’t started yet: | 25% |
| Yes, but I’m unable to start due to the cost: | 11% |
| I don’t need one, all my properties are already compliant: | 20% |
| No: | 22% |
Timing of works
When asked how they were planning on undertaking the works, 36% of landlords who own commercial properties said they intend to wait to the end of the lease to do works, which is up from 10% in the previous year.
When it comes to residential landlords, the most notable change is that 53% are not sure when they will do the works, which is up from 41% from the previous year. This would again appear to indicate undertaking the works is not a priority for this group of landlords.
We asked – How will you undertake these works?
| I’ll undertake the works while the properties are unoccupied: | 22% |
| I’ll undertake the works while my tenants are in situ: | 25% |
| I’m not sure: | 53% |
| Residential Landlords | 2022/23 | 2023/24 |
| I’ll undertake the works while the properties are unoccupied: | 14% | 22% |
| I’ll undertake the works while my tenants are in situ: | 45% | 25% |
| I’m not sure: | 41% | 53% |
Lease events
There were also some interesting findings regarding lease events: when asked whether they were going to take advantage of lease events to implement changes, both the majority of residential (72%) and commercial (64%) landlords said they weren’t, despite the majority of landlords also stating that they were unsure on when they’d undertake the works.
We asked – Are you planning on taking advantage of lease events to implement these changes?
| Yes – break clauses: | 14% |
| Yes – early termination revisions: | 0% |
| Yes – other similar clauses: | 14% |
| No: | 72% |
Length of works
It is interesting here to see that 46% of commercial landlords anticipate works will take 1-2 years, which may indicate the importance of minimising disruption to in situ tenants, as well as issues getting good contractors to do works.
The responses from residential landlords have hardly changed since last year – with over 30% in both surveys unaware of how long works may take to complete.
We asked – How long do you estimate these works will take?
| Less than 1 year: | 50% |
| 1-2 years: | 9% |
| 3-4 years: | 5% |
| 4 or more years: | 5% |
| Not sure: | 31% |
| Residential Landlords | 2022/23 | 2023/24 |
| Lest than 1 year: | 55% | 50% |
| 1-2 years: | 10% | 9% |
| 3-4 years: | 0% | 5% |
| 4 or more years: | 2% | 5% |
| Not sure: | 33% | 31% |
Cost of works
Commercial landlords are again seen to be taking action – 64% now estimate costs to be less than £500k – a shift from the 80% that last year had no idea as to costs.
The shift for Residential landlords, however, is minimal – 44% are ‘Not sure’, which to us indicates that they’re holding fire on plans as there is no need to complete the works.
We asked – How much will these changes to your properties cost?
| Less than £500k: | 42% |
| £500k – £1m: | 14% |
| £1m – £2m: | 0% |
| £2m – £3m: | 0% |
| £3m-£5m: | 0% |
| More than £5m: | 0% |
| Not sure: | 44% |
| Residential Landlords | 2022/23 | 2023/24 |
| Lest than £500k: | 51% | 42% |
| £500k – £1m: | 4% | 14% |
| £1m – £2m: | 0% | 0% |
| £2m – £3m: | 2% | 0% |
| £3m – £5m: | 0% | 0% |
| More than £5m: | 0% | 0% |
| Not sure: | 43% | 44% |
Financing the changes
The replies from commercial landlords indicate that in 2023/4 they have explored financing options and now have a plan(s) in place regarding funding.
The replies from the residential landlords have not changed significantly since 2022 – which appears to follow the trend highlighted in earlier answers, namely that the priority placed on energy improvement works by residential landlords has not changed.
We asked – How will you finance the changes to your properties?
| Own reserves: | 50% |
| Shareholder investment: | 6% |
| Bank debt: | 5% |
| Other external debt: | 0% |
| Not sure: | 39% |
| Residential Landlords | 2022/23 | 2023/24 |
| Own reserves: | 55% | 50% |
| Shareholder investment: | 2% | 6% |
| Bank debt: | 6% | 5% |
| Other external debt: | 0% | 0% |
| Not sure: | 37% | 39% |
Cash flow
When asked if they had a cash flow plan in place, the majority of commercial landlords said they did. This is a stark comparison to last year, when 30% that said they did not.
The replies from residential landlords indicate that 42% have a cash flow plan to manage their costs; perhaps this is the 50% that stated they would fund works from their own reserves.
We asked – Do you have a cash flow plan to manage the cost of works?
| Yes: | 42% |
| No, but I’m interested in developing one: | 16% |
| No, but I don’t need one: | 22% |
| No, I’m not sure how to make one: | 20% |
| Residential Landlords | 2022/23 | 2023/24 |
| Yes: | 18% | 42% |
| No, but I’m interested in developing one: | 18% | 16% |
| No, but I don’t need one: | 27% | 22% |
| No, I’m not sure how to make one: | 37% | 20% |
Potential reliefs
The response here shows people clearly have greater awareness of tax relief than they did a year ago. Only 9% of commercial landlords are not aware of the opportunities to claim tax relief.
Residential landlords are more limited in the relief that can be claimed but their awareness has increased. Changes in the tax relief for residential landlords is an incentive that the Government should consider to encourage landlords to improve homes in the rental sector.
We asked – Did you know that you may be able to use the Government’s new Capital Allowance Regime to help reduce the cost of any EPC-related works?
| Yes, and I’m intending to claim it: | 5% |
| Yes, and I’m still considering whether to claim it: | 20% |
| No, and I’d be interested in learning more about it: | 47% |
| No: | 28% |
| Residential Landlords | 2022/23 | 2023/24 |
| Yes, and I’m intending to claim it: | 8% | 5% |
| Yes, and I’m still considering whether to claim it: | 6% | 20% |
| No, and I’d be interested in learning more about it: | 51% | 47% |
| No: | 35% | 28% |
Available exemptions
This question was a new addition to the survey this year, and showed that 36% of commercial and 20% of residential landlords had checked their eligibility in relation to exemptions.
However, 55% of commercial landlords and 47% of residential landlords were unsure of their eligibility for exemptions – this tells us that the Government needs to make these rules clearer and improve the communication around incentives.
We asked – In meeting the new EPC guidelines, have you considered applying, or checking your eligibility against any of the exemptions available to you before planning the required works?
| Yes: | 20% |
| No: | 33% |
| No not eligible: | 0% |
| Unsure of eligibility: | 47% |
What should landlords do now?
When asked if they were considering exiting the lettings market due to EPC regulations, 64% of residential landlords said they are either considering selling or are unsure of whether to sell – only 36% said they were not considering selling.
Unsurprisingly, 82% of commercial landlords are not considering selling due to these reasons.
These are more sophisticated investors whose knowledge of their market is significantly greater.
So what should landlords do now?
All landlords should:
Obtain EPC ratings for all properties owned.
Undertake a cost/benefit analysis of all suggested improvements.
Review the leases for any properties impacted in order to determine whether costs can be passed to the tenant.
Check they are letting their properties legally. It is illegal, from April 2023, to let properties with a certification below ‘E’ which do not have an exemption certificate. Landlords with properties in this category who intend to let them need to ensure all refurbishment works will deliver a certification above ‘E’.
Seek professional advice on whether any of the required works could benefit from tax relief. Not all expenditure will qualify, particularly on residential properties, and it will be important for landlords to identify what EPC improvements do qualify and factor this into the cashflow/cost analysis.
Commercial landlords should:
Review their commercial property portfolio EPC register, identify any properties with low EPC ratings (‘E’ or ‘D’) and establish the works required to improve the EPC certification in advance of the increase in standards in 2027.
Residential landlords should:
Consider whether it is commercially attractive to enter into a separate contract for energy efficiency works or combine these with a contract for major refurbishment works. Splitting the work over two contracts means that VAT is not payable on the energy efficiency works.
What should the Government do now?
Given the large percentage of residential landlords that remain unaware of the new EPC rules, it is clear that the Government needs to increase its promotion of the legislation to increase awareness.
If residential or commercial properties cannot be let as a result of the new EPC requirements those properties will instead be sold to occupiers and will remain energy inefficient properties. This will in turn impede Government plans to improve the energy efficiency of buildings across the country.
The Government also needs to revisit funding or tax relief plans to help landlords to improve the energy efficiency of their buildings.
Landlords who own commercial properties are being driven by the market to undertake the works to improve their buildings, yet this is not happening in the residential sector as demand significantly exceeds supply. The Government therefore needs to consi
Next steps for you
If you would like to discuss how the EPC rating changes affect you specifically, please get in touch with your usual Blick Rothenberg contact, or contact Heather Powell using the form below.
Contact Heather
