What HMO landlords should know about EPCs

Categories: hmo | guides | buy to let mortgage guides

This guide explores Energy Performance Certificates (EPCs) for HMOs and HMO EPC regulations. It will help landlords get the knowledge to meet necessary legal standards.

However, please use this for information only and ensure you seek appropriate, professional advice.

What is an EPC?

An Energy Performance Certificate (EPC) is a document that tells you how energy efficient a building is. It shows the energy performance of a building. The EPC helps buyers and tenants by showing the energy use and cost of heating and powering a property. It also suggests ways to make the property more energy efficient.

What information an EPC provides

An EPC provided by the UK government holds a wealth of information including:

• Energy efficiency rating: The certificate displays a rating from A (most efficient) to G (least efficient), reflecting the property's overall energy efficiency.
• The average energy rating for properties in England and Wales, so you can see how yours compares.
• A breakdown of energy performance by building feature: This gives a poor, average or good rating to things like walls, windows, roof, floor and more so areas for improvement are made clear.
• Estimated energy costs: The EPC offers projections of potential energy costs over a year.
• Recommendations for improvement: This suggests changes that can be made to enhance energy efficiency. It can include things like insulation upgrades and glazing improvements.
• Environmental impact: The certificate also provides a rating that denotes the property's impact on the environment in terms of carbon dioxide emissions.

Duration and validity of an EPC

An EPC is valid for ten years from the date of issue. After this period, if the property is to be sold or rented out again, a new EPC will be required.

If you make changes to a property which will improve its energy efficiency, you can get a new EPC, even before the current one expires. This will show the most accurate energy rating.

Why would you do this? Well, HMO properties with an EPC rating A-C benefit from lower mortgage interest rates with some lenders. This is widespread across the buy to let mortgage market.

Lenders first launched “green” residential mortgages around 2018, with the first green buy to let mortgage launching in 2021. Since that time they have grown in number.

The government were proposing to increase minimum EPC ratings for the rental sector, but in a surprise move reversed this plan in September 2023.

HMO EPC requirements

There are general rules that apply to EPCs within the private rental sector that are true of any property type, including HMOs. But, there are some more specific factors to be aware of with HMO properties.

Do you need an EPC for an HMO?

Unless the building is exempt, you will need an EPC for an HMO property. Exemptions apply to a few circumstances that are broadly unlikely to apply to an HMO property (see “When is an EPC not required?” below).

The free provision of an EPC certificate is one of the Assured Shorthold Tenancy Notices and Prescribed Requirements (England) Regulations 2015. This means you have to provide one, or you will be in breach of these regulations, and as a result any eviction notices you might impose in the future can be disputed.

There has been debate as to whether each tenant within an HMO should be provided with a copy of the EPC or whether provision of the EPC just applies to the building as a whole. So much so a case passed through a county court in Newcastle, which focussed specifically on this issue.

A landlord served a Section 21 notice, to regain possession of their HMO property, on a tenant. The tenant appealed the notice, on the basis they had not been given an EPC.

The case (Home Group Ltd v Henry. County Court at Newcastle. 21 May 2018) hinged on the regulations stipulating that the provision of an EPC applied to a building, and that the bedroom within the HMO did not fulfil the definition of a building, because it was not designed to be used separately from the rest of the property (as is the case with all HMOs). As a result the landlord argued that the regulations did not apply.

The tenant appealed, stating that the 2015 regulations should be upheld as there was no reason being a tenant in a HMO should stop it being enforced, but the judge dismissed the appeal.

It is important to note that there is a significance to this case being heard at country court to a circuit judge. It means the case is not ‘binding’, which means that the finding does not apply as a blanket rule in law. Other cases may be heard and a different outcome reached.

It is the difference between Statute law and Case law. Statute laws require all courts to behave in the same way. Case law can reach different outcomes based on individual findings.

As such, it would be unwise for HMO landlords to assume that because this case was successful for the landlord that any similar case would be.

The simplest way, for avoidance of any doubt, is to provide all HMO tenants with an EPC certificate. Provide it as early as possible (e.g. ahead of or at a viewing) and certainly before they move in, as you would with a single unit rental property.

Landlords should consult local councils for clear information on HMO EPC requirements, as they can vary and change over time.

The need for EPCs in HMO properties

With an HMO, it's essential to ensure that the property is energy-efficient. This not only helps reduce energy costs but also supports a more sustainable and environmentally friendly living standard.
For HMO landlords, understanding and meeting EPC requirements is a step towards ensuring that tenants have a clear picture of the energy consumption and costs associated with their accommodation.

When is an EPC not required?

An Energy Performance Certificate (EPC) is essential for most HMOs. However, there are overarching exemptions for some buildings as outlined on the UK government website:

Temporary structures:
Buildings that are used for less than two years, such as temporary housing accommodations or student halls of residence, may not need an EPC.

Listed buildings:
If an HMO is within a building that's officially listed and requiring compliance would alter its character or appearance, it might be exempt. However, this isn't a blanket exemption and will depend on the specific alterations needed and local regulations.

Places of worship:
Buildings primarily used for religious activities often do not require an EPC, even if they house residents.

Industrial or agricultural buildings:
Workshops and industrial or agricultural buildings whose energy use is minimal may not require an EPC.

Stand-alone buildings with a total useful floor area of less than 50 square meters:
These small-sized buildings might not necessitate an EPC, but it's a less common scenario for HMOs.

Penalties

If required, the absence of an EPC can lead to several consequences for HMO landlords, including:

• A ban on being able to let your property: You cannot let any property that is in breach of EPC regulations, including HMOs. Local authorities enforce Minimum Energy Efficiency Standards (MEES). If your HMO is required to meet the minimum threshold of E (which it will be, unless it is exempt) and it doesn’t, the local authority may serve a compliance notice. A compliance notice requests information to establish if a breach has occurred, the result of which may lead to a financial penalty.
• Financial penalties: Landlords can face significant fines of up to £5,000 if they fail to provide an EPC when required. These penalties can be given up to 18 months after a breach occurred.
• Publication of a breach: as well as fining a landlord, the local authority has the right to publish the details of an EPC breach for at least 12 months, which could affect your reputation as a landlord in the eyes of tenants, lettings agents and the council themselves.

If your HMO is compliant, but has a poor energy rating, it could put off prospective tenants, given the rising cost of energy.

Practical steps for HMO landlords

Below are practical tips for landlords, including a checklist for getting and keeping an EPC and tips to make your HMO more energy efficient:

EPC checklist

1. Research and understand the basics: Before diving in, ensure you fully understand what an EPC entails, its duration, and its significance.
2. Find a certified assessor: Use a government approved energy assessor in your area.
3. Prepare the property: Ensure easy access to all areas of the property. The assessor will need to inspect lofts, basements, and all rooms.
4. Gather relevant documents: If you’ve made recent energy improvements, have the paperwork ready. This might influence your rating.
5. Get the certificate: After assessment, you'll receive your EPC, or you will be able to access it online.
6. Display the EPC: If required by local regulations, make sure the certificate is displayed prominently within the property, it certainly has to be provided to prospective tenants at the earliest opportunity. This is when interest is expressed in the rental (unless you have reasonable grounds to show the prospective tenant is not genuinely interest in the letting).
7. Renew as necessary: Remember, EPCs are valid for ten years. It could be very easy to miss its expiry date, so make sure you put in place at least a couple of ways to remind yourself of the expiry date.

Tips on improving energy efficiency

• Insulation: Ensure that walls, roofs, and floors are adequately insulated.
• Upgrade windows: Double or triple glazing can substantially reduce heat loss.
• Appliances: When replacing appliances, opt for those with a high energy-efficiency ratings.
• LED lighting: Swap out old bulbs for LED ones, which last longer and consume less energy.
• Boiler upgrades: An efficient boiler can make a significant difference in energy consumption.
• Educate tenants: Provide tenants with information on how to use heating systems efficiently and the benefits of conserving energy.
• Regular maintenance: Ensure heating systems and appliances are regularly serviced to maintain their efficiency.

The importance of EPC management

The importance of EPC compliance cannot be overstated. Beyond the legal implications, there are tangible long-term benefits for landlords. A well-kept, energy-efficient HMO property attracts and keeps tenants. This can lead to higher rental income and less time without tenants. Properties that meet energy standards usually have lower running costs, which saves money in the long term.

Laws and standards are subject to change. To ensure you remain compliant, take professional advice from qualified experts.