Private rented housing energy efficiency and condition standards: consultation

Part 1: Proposals for an energy efficiency standard for private rented housing

Outline of this part of the consultation

This part of the consultation looks at a minimum energy efficiency standard for private rented housing. In this part we:

• explore the need for setting minimum energy efficiency standards in private rented housing;
• set out the proposed scope of minimum standards;
• look in more detail at how the standard would work at the point of rental, and at a date by which time all properties would need to meet the standard;
• set out proposals for raising the minimum standard over time;
• explore what would be needed in a new assessment to support the introduction of standards; and
• seek views on the impact of these proposals.

Why do we need a minimum energy efficiency standard?

17. There have been significant improvements in the energy efficiency of Scotland's homes in recent years, with around 36% now having an Energy Performance Certificate ( EPC) energy efficiency rating of band C or above. Nearly half of social housing has an EPC of at least C, while in owner-occupied and privately rented properties it's a third. We know that there have been calls for all properties to have a minimum EPC rating of C, for example in the recent report of the Fuel Poverty Strategic Working Group ^[4] .

18. The Scottish Government shares the aspiration of the Working Group to eliminate poor performance of a property as a driver of fuel poverty. That is why we have allocated over £650m since 2009 for these purposes, and have committed to allocating a further half a billion pounds over the next four years. But even with this level of public investment and the range of support on offer, more action is needed to improve the least efficient stock.

19. A higher proportion of private dwellings fall into the lowest EPC bands than is the case for social dwellings. Within that, the performance of the private rented sector is relatively worse than the owner-occupied sector: 28% of private rented dwellings (95,000) fall into EPC bands E, F and G, compared with 22% (329,000) in the owner-occupied sector and 10% (58,000) in the social rented sector. For the two worst EPC bands - F and G - the share is 9% (30,000 dwellings) for the private rented sector, compared with 5% (71,000 dwellings) for the owner-occupied sector and 2% (13,000 dwellings) for the social rented sector. ^[5]

20. More and more people are renting privately. It has become the most common tenure for young households. But it is not only young single people living in this sector - around a quarter of households in the private rented sector have children in them. Households from across the income range are housed in the sector. ^[6]

21. As part of the development of Scotland's Energy Efficiency Programme, Ministers are considering the important role which setting minimum standards can play in driving forward the improvements needed. Not only will it ensure that the least efficient properties are improved within a reasonable amount of time, but it will create greater certainty for the sector - owners, installers, assessors and lending institutions - about the scale of the work needed and the pace of demand.

22. We have already set energy efficiency targets for social housing. In 2014 the Scottish Government introduced the Energy Efficiency Standard for Social Housing ( EESSH). By the time of the first milestone in 2020 social rented property will be required to have the equivalent of a minimum EPC energy efficiency rating of 'C' or 'D', depending on its built form.

23. Private sector landlords already have to make sure their properties meet certain standards under the repairing standard (see Part 2 of this consultation), but this does not include energy efficiency. In comparison, tenants in the social rented sector as a whole enjoy warmer properties as social landlords are already working to meet the EESSH.

24. Making privately rented houses more energy efficient will help address fuel poverty by making them easier and cheaper to keep warm (with associated health benefits ^[7] for occupants), and lower carbon emissions helping to tackle climate change.

25. The Scottish Government is separately considering the role of minimum standards in improving the least efficient owner-occupied properties, alongside other possible interventions such as the use of grants and loans or other incentives. We will consult on proposals to improve the energy efficiency in the owner-occupied sector from winter 2017/18.

Overview of proposals

• Scope: privately rented properties covered by the repairing standard will need to meet a minimum energy efficiency standard. See Section 1 for further information.
• Setting the standard: the standard will be based on the energy efficiency rating on the Energy Performance Certificate ( EPC) (see Section 2). The standard will be an EPC band E initially (affecting 30,000 properties) (Section 3), and will be raised to a band D (affecting a further 65,000 properties) over time (Section 10). We are also seeking views on raising it beyond this level (Section 11).
• Point of rental and backstop date: the standard will initially apply to properties where there is a change in tenancy, and then to all properties (Section 4).
• Meeting the initial standard of E: the standard will initially apply to properties where there is a change in tenancy after 1 April 2019. A change in tenancy is where a new tenancy agreement is required under the Private Housing (Tenancies) (Scotland) Act 2016 (which comes into force from December 2017), and a property meets the standard if it has a valid EPC showing an energy efficiency band E. Where the EPC shows a band of F or G, the owner will need to have a minimum standards assessment (which is a new assessment proposed in this consultation, see Section 7 for further information) carried out and lodged on the EPC register before renting out the property. The owner will have to bring the property up to the standard required by that assessment (which will normally be an EPC E) within six months of the date of the assessment. See Section 5 for further information.
• Backstop date: all properties covered by the repairing standard would need to meet the energy efficiency standard by 31 March 2022 (the "backstop date"). Where the property has an EPC rating of F or G (and is not covered by an exception following a change in tenancy - see Section 9) the owner would need to have a minimum standards assessment carried out by 30 September 2021, allowing a six-month period to carry out the required improvements ahead of the backstop date. See Section 6 for further information.
• Raising the standard to EPC D: properties covered by the repairing standard would meet the standard at a change in tenancy after 1 April 2022 if they have an EPC energy efficiency rating of D, and this standard would apply to all properties by 31 March 2025. The application of the standard of D at change in tenancy and by the backstop date would work in the same way as for the initial standard of E. Any increase in the standard from 2025 would be considered following future review of the implementation of the initial minimum standards. See Sections 10 and 13 for further information.
• Doing the work: the owner of the property will be responsible for getting the improvements required by the minimum standards assessment done. See Sections 8 and 12.

• Fines: local authorities will have the power to issue civil fines of up to £1,500 against any owner who does not comply with the standard. See Section 9 for more information.

Exceptions: recognising that in some cases there may be valid reasons why an owner cannot comply fully with the minimum standard, there will be some situations where an owner is not required to do all the improvements identified in the assessment, or will have a longer time to do so. We are proposing a cost cap of £5000, and we are seeking views on the existing incentives available to improve the energy efficiency of privately rented properties. See Section 9 for further information.

Timeline for compliance with the PRS Energy Efficiency Standard and Scotland's Energy Efficiency Programme

Section 1 - Scope

26. We propose the minimum energy efficiency standard should apply to properties already covered by the repairing standard. This can include any type of privately rented tenancies including houses in multiple occupation ( HMO) ^[8] . This is a standard which private tenants are entitled to expect from their properties, and landlords will already be aware of whether or not their property is covered by that standard. By aligning the energy efficiency standard with this it will be clearer to landlords and tenants as to whether or not their property would be covered by these standards.

27. The repairing standard does not currently apply to certain types of tenancy, including agricultural tenancies and some types of holiday lets. Part 2 of this consultation considers whether those types of tenancy should be brought within scope of the repairing standard. If that happens then the energy efficiency standard would also apply to those properties under this proposal.

28. If the tenancy is not covered by the repairing standard, or is already at the required minimum energy efficiency standard, the landlord will be under no obligation to improve the property's energy efficiency under these regulations.

29. In these situations, landlords may still choose to carry out improvements to their property to make them more energy efficient. More information on current sources of advice and assistance is included in Section 8 and we would encourage landlords to take advantage of any funding schemes available to carry out improvements.

Consultation question

Question 1.1 - Do you think that only tenancies covered by the repairing standard should have to meet minimum energy efficiency standards? Yes/no/don't know.

If not, what other privately rented tenancies do you think should be included?

Section 2 - Linking the standard to the Energy Performance Certificate ( EPC)

30. We propose that the standard should be linked to the EPC system ^[9] . Landlords and tenants should be familiar with the document and the assessment method, as EPCs are already required at a change in tenancy. The rating system is also currently used for setting standards that apply to socially rented housing.

31. EPCs were introduced to implement the requirements of the EU Energy Performance of Buildings Directive ( EPBD). Since 4 January 2009 landlords have had to ensure that a valid EPC is available to new tenants for any property where there is a change in tenancy. For the purpose of the Directive, an EPC is valid for a period of 10 years.

32. The EPC methodology works out a rating for a property's energy efficiency and environmental impact, which is a numerical score between 1 and 100. These ratings are also grouped into bands from A-G, where G is the least efficient. The rating and band are determined by an assessment of the property's age, type and characteristics. This provides a mechanism by which to compare different properties and provide simple initial advice on how a property might be improved.

33. There are processes in place to ensure that new technologies and evidence are reflected in changes to the methodology over time, to maintain its currency and relevance. Using the EPC provides consistent methodology which is applied as a benchmark in a range of Scottish Government policies and programmes.

34. The Scottish Government believes that the current processes which support the EPC are an appropriate basis for regulation. However, we will take the opportunity offered by the development of Scotland's Energy Efficiency Programme to review how the methodology supports wider Scottish policy. We will identify areas where action to revise or enhance the current process would be beneficial to support use such as is proposed here. While the purpose of this consultation is not to explore in detail the workings of the EPC process as this is set by EPBD, feedback from this consultation will be fed into that process.

Consultation questions

Question 1.2 - We propose to link the minimum energy efficiency standard to the energy performance certificate as we think this is the most suitable mechanism. Do you agree? Yes/no/don't know.

If you answered no:

(a) please explain why; and

(b) please set out your suggestions for how we could set the standard.

Question 1.3 - (a) Do you think there are elements of the energy performance certificate assessment that would need to be altered to support a minimum energy efficiency standard?

Yes/no/don't know.

(b) If so, what areas do you think would need to be changed and what evidence can you offer to support your view?

Section 3 - Setting the level of the minimum standard

35. The Scottish Government has set up Scotland's Energy Efficiency Programme ( SEEP) to drive improvements in the energy efficiency of properties over the next 15-20 years, as part of the delivery of the Climate Change Plan. SEEP will deliver a range of measures, including developing appropriate financial support and incentives, and ensuring there is a strong and robust supply chain, to help owners to improve their properties. We think that minimum standards have an important role to play in underpinning these support mechanisms, both in driving action in the least efficient properties, and in creating certainty amongst property owners and the supply chain about the scale of the work needed.

Use of the energy efficiency rating to set the standard

36. The EPC provides both an energy efficiency rating and an environmental impact rating. We think that the standard should be set in relation to the energy efficiency rating of the property, which takes into account both energy use (for space and water heating, lighting, cooling and ventilation) and the cost of fuels. The calculation is based upon both simplified building data and standard assumptions on climate, occupancy and use of the building. This enables a robust and consistent output which allows direct comparison between different dwellings.

37. Action to improve the energy efficiency rating is something landlords and tenants are more familiar with (reducing energy use reduces running costs). This is also in line with the approach we have set out in the draft Climate Change Plan, which prioritises actions to improve energy efficiency in the years to 2025, before increasing focus on the decarbonisation of the heat supply. Measures implemented to improve the energy efficiency rating will, with few exceptions, also reduce greenhouse gas emissions.

The level of the minimum standard

38. We propose to set an initial standard of E from 2019, raising this to D within 3 years. This will ensure that action is taken to improve the worst performing properties first, while also setting out a clear direction for owners of rented properties that a higher standard will be required over the longer term. Section 10 provides more information on raising the standard to D.

39. We are aware that the Strategic Working Group on Fuel Poverty has called for SEEP to have a milestone of EPC C by 2025 to significantly reduce energy efficiency as a root cause of fuel poverty.

40. We share the Group's aspiration to eliminate poor energy performance of a property as a driver of fuel poverty, but think that there would be challenges in setting a mandatory target of C as a minimum standard, in relation to cost, technical considerations and the wider context of the climate change plan. SEEP is consulting on a range of issues, including seeking views on how to set clear targets and milestones for the lifespan of the programme, which would be delivered through a range of standards and incentives.

41. Section 11 considers raising the standard further beyond D in more detail.

Setting the initial standard at E

42. Around 9% of PRS properties (30,000 dwellings) are currently in EPC energy efficiency band F or G. By improving these properties first we will be taking action to improve the least energy efficient properties, which not only cost the most to heat, but which are also likely to pose the greatest threat to the health of their occupants from cold and damp. With the introduction of the standard at E initially, the worst properties can be improved while the rental, installation and assessment sectors gear up to be able to deliver the higher standard of D from 2022 (as set out in Section 10).

43. It is estimated that around 60% of households living in privately rented dwellings with an EPC of F or G are currently fuel poor. ^[10] Of these 19,000 households, about 3,000 could currently be taken out of fuel poverty if the energy efficiency of their property were raised to an EPC of E. The remaining 16,000 fuel poor households would also benefit from lower fuel bills if their property were raised to an E, although the improvement they experience would not be enough to lift them above the threshold set by the fuel poverty definition, due to the impact of other factors, in particular income and fuel prices, in determining fuel poverty.

44. An estimated 63% of the 30,000 dwellings with an EPC of F or G are located in rural areas, and 82% were built before 1919. The greater rurality and age of these dwellings is correlated with other features which tend to make them less energy efficient - they are more likely to have stone walls (80%), be detached houses (39%) and less likely to use mains gas as their primary fuel source (1%) than dwellings in the private rented sector as a whole. ^[11] However, the original built form and access to the gas grid do not on their own determine the current energy efficiency of dwellings - the degree to which retrofit measures are installed is also important. For example, in the social sector, where there is a much stronger regulatory system than the private rented sector, the prevalence and depth of loft insulation, and the proportion of eligible walls that have received cavity insulation, is much higher. ^[12]

45. Our modelling also suggests that the cost of raising these 30,000 dwellings to an E is relatively limited - the average upgrade cost is estimated to be around £1,100, giving a total upgrade cost of £33 million. ^[13] In some cases the cost of improvement work will be lower. In others, for example in traditional stone dwellings off the gas grid which are particularly hard to treat, it may be significantly higher. However, in Section 9 we set out our proposals for exceptions to the standard, which will ensure that measures are only installed where they are technically feasible and not excessively costly.

46. Modelling work suggests that the most common measures that may need to be installed to bring a property up to an E are loft insulation, replacing the secondary heating (where applicable) with a more efficient system, cavity wall insulation, room in the roof insulation and low energy lighting. However, in a very small number of cases more expensive measures may be required, e.g. solid wall insulation was modelled as being part of the least cost upgrade package in fewer than 1% of dwellings. ^[14]

Consultation question

Question 1.4 - Do you think that the minimum energy efficiency standard for private rented properties should be set at an energy efficiency rating of E in the first instance?

Yes/no/don't know.

Please explain your answer.

Section 4 - Bringing in the standard of EPC E at point of rental and then at a backstop date

47. As set out above, modelling suggests that setting a minimum standard at E will affect 30,000 properties at a total estimated cost of £33 million, requiring 47,000 individual measures. We propose to phase the standard in, applying it first only where there is a change in tenancy and then to all privately rented housing. By initially phasing the need for work over several years this will minimise the risk of a "bottleneck" of work being required at a future date, provide certainty for the sectors involved in the work required, and ensure that the benefits to tenants and the carbon abatement begin earlier.

48. A change in tenancy provides a natural opportunity for landlords to take action to improve a property while it is empty, and landlords are already expected to ensure that their property meets the repairing standard from the start of a tenancy. For the standard to be delivered, landlords will need to be aware of their obligations; there will need to be assessment and installation processes in place; and there will need to be the appropriate supporting measures such as incentives, skills and supply chain capacity. Section 8 further considers the support available to landlords.

49. We think that a period of two years would be sufficient time for landlords to prepare to take action, or to take action ahead of the introduction of the standard taking advantage of existing incentives. We therefore propose that the standard would apply at a change in tenancy after 1 April 2019, which is two years from the start of this consultation.

50. But there will be some properties where there is no change in tenancy, such as houses in multiple occupation, or where there are long standing tenants - for example, around a fifth of tenancies in privately rented dwellings with an EPC of F or G are estimated to last for more than 10 years. We want to ensure that all tenants in the private rented sector live in warm houses, and so we propose to have a "backstop date" by which all privately rented housing would be expected to meet a minimum standard, whether or not there has been a change in tenancy.

51. We propose that this should apply by 31 March 2022, three years after the introduction of the standard at the point of rental. Modelling suggests that around half of the properties rented privately at 1 April 2019 with an EPC of F or G will have had a change in tenancy within three years, and so will already have been improved by the time of the backstop date. This would mean that around 13,000 properties would remain to be improved by this date.

Consultation questions

Question 1.5 - Do you think that the minimum energy efficiency standard should first of all apply only to those properties where there is a change in tenancy, and after that to all private rented properties? Yes/no/don't know.

Question 1.6 - Do you think that 1 April 2019 is the right date to start applying the minimum standard of E when there is a change in tenancy? Yes/no/don't know.

Question 1.7 - Do you think that 31 March 2022 is the right date by which all privately rented properties would need to meet the minimum standard? Yes/no/don't know.

Please explain your answers.

Section 5 - Meeting the standard when there's a change in tenancy after 1 April 2019

Flowchart 1: Meeting EPC energy efficiency band 'E' at change in tenancy

52. Landlords already need to have a valid EPC available for a property offered for let when there is a change in tenancy. Under the Energy Performance of Building (Scotland) Regulations 2008 the EPC is valid for a period of up to 10 years, and must be lodged on the EPC register. There are existing mechanisms to enforce this requirement.

53. From December 2017 there will be new tenancy agreements under the Private Housing (Tenancies) (Scotland) Act 2016. We propose that the energy efficiency standard would apply where there is a new tenancy under these regulations.

54. If there is a valid EPC showing an energy efficiency Band E then the property will meet the standard, and the owner doesn't need to do anything else before a new tenant moves in. If the landlord wishes to make further improvements in any case then more information is available from Home Energy Scotland (see Section 8).

55. If the EPC assessment shows a Band F or G then the owner would need to take action to comply with the new standard.

56. In the first instance they might want to consider:

• if the EPC is, for example, produced using an older edition of the Standard Assessment Procedure ( SAP) ^[15] methodology, checking to see whether a new EPC under current methodology would report the required band; or

• if the EPC they have uses the version of SAP currently in use, contacting Home Energy Scotland or considering the recommendations report within the EPC to see if there are simple measures which would bring the property up to Band E. The landlord might want to carry these out and commission a further EPC to confirm this achieves the required rating ahead of rental.

57. Where the property doesn't achieve an EPC Band E, we propose that the owner will need to have a minimum standards assessment carried out and lodged on the register before the new tenancy begins. The assessment will identify the required improvement for the property, which will usually be to an EPC Band E. More information on the minimum standards assessment is set out in Section 7.

58. In practical terms it may be simplest to carry out the improvements identified by the assessment before the tenant moves in. But if the owner wants to rent the property first (for example in areas where there is high demand for properties, for cash flow considerations, or where there is a short term shortage of installers to carry out the work) then we propose they should have a period of six months from the date of the minimum standards assessment to carry out the improvements.

59. The owner can carry out the measures identified in the assessment, or any others they prefer, provided that a post-improvement EPC would show the rating required by the assessment. The owner will be responsible for providing proof that the property is compliant, for example through the production of a new EPC showing the required rating, or evidence that the measures identified in the assessment have been installed.

60. Section 9 considers situations where the owner would not be penalised for not carrying out the full improvement identified by the assessment.

61. This means that there will be additional responsibilities and costs on the landlord where the existing EPC shows a rating of F or G. There will be an additional minimum standards assessment to identify the required improvement; the cost of the works; and a new EPC showing the improvement required by the assessment where this is the route for proof. Section 8 provides more information on support for landlords to get the works done.

Consultation question

Question 1.8 - Where a property has an EPC of F or G at the point of rental:

(a) do you think that we should require the owner to carry out a minimum standards assessment before renting the property out?

Yes/no/don't know.

(b) do you think that we should allow a period of six months from the date of the minimum standards assessment to carry out the improvement identified by the assessment?

Yes/no/don't know.

(c) do you think that the owner should have to provide a post-improvement EPC to prove that the necessary improvements have been made?

Yes/no/don't know.

Please explain your answers.

Section 6 - Meeting the standard in all private rented properties by 31 March 2022 (the "backstop date")

Flowchart 2: Meeting EPC energy efficiency band 'E' at "backstop date"

62. We propose that there should be a date by which all tenancies covered by the repairing standard should need to meet the energy efficiency standard, so that tenants in the least efficient properties where there is no change in tenancy will also benefit from improvements.

63. Our modelling estimates that around 60% of the tenancies in existence on 1 April 2019 in dwellings with an EPC below E will end within a three-year period. So we are proposing that all privately rented properties should meet the minimum standard by 31 March 2022, whether or not there has been a change in tenancy since 1 April 2019, as over half of the properties would already have been improved under the proposals to apply the standard at a change in tenancy.

64. We propose that owners should still have a minimum of six months to bring their property up to standard where they have had a minimum standards assessment. This means that:

• if there is a valid EPC showing an energy efficiency Band E then no further action is required;

• if a property has an EPC rating of Band F or G, the owner would need to have a minimum standards assessment carried out and lodged by 30 September 2021 ("backstop assessment" date);

• the owner will have to carry out the required improvement by 31 March 2022 (6 months from the "backstop assessment" date).

65. In the majority of cases privately rented properties will already have an EPC by 30 September 2021 due to requirements under the Energy Performance of Building (Scotland) Regulations 2008 to provide an EPC at the point of rental since 4 January 2009. If the EPC shows a rating of E or above, and is valid under the 2008 Regulations, then it will prove compliance.

66. But in some cases a property may have been rented out continuously since before the introduction of the EPC requirements. Where there is no existing EPC for the property, the owner would need to know whether or not a minimum standards assessment is required. This would mean either commissioning an EPC or a minimum standards assessment. This is because the first stage in a minimum standards assessment would be to assess the property's current energy efficiency rating where there is no EPC under the current methodology (see Section 7). Where this showed a rating of E or above, an EPC would be lodged for the property and no further action would be required.

67. Where an owner has already complied with a minimum standards assessment since 1 April 2019 they will not be expected to improve their property again for the backstop date.

68. Where a new EPC for a rented property is required after 1 October 2021, either because of a change in tenancy (where the EPC is now over ten years old) or where a property moves into the private rented sector, the standard would apply in the same way as a change in tenancy before 30 September - if the EPC shows a rating of F or G then a minimum standards assessment would be required, and the owner would have six months from the point of the assessment to carry out the improvements.

69. This means that there will be additional responsibilities and costs on the landlord. There may be a cost for an EPC where a property does not already have one under the Energy Performance of Building (Scotland) Regulations 2008 requirements to determine whether the property has an EPC of E or above; if the EPC shows a rating of F or G, then the landlord will have to get a minimum standards assessment to identify the required improvement, and carry out works to improve the energy efficiency to the required rating; and there may be the cost of a post-improvement EPC to prove compliance.

Consultation question

Question 1.9 - We think that all privately rented properties should have to meet the minimum standard by 31 March 2022. Where a property does not have an EPC of E:

(a) do you think that we should require the owner to carry out a minimum standards assessment by 30 September 2021 (the "backstop assessment" date)?

Yes/no/don't know.

(b) do you think that we should allow a period of six months from the backstop assessment date to carry out the improvement identified by the minimum standards assessment?

Yes/no/don't know.

(c) do you think that the owner should have to provide a post-improvement EPC to prove that the necessary improvements have been made?

Yes/no/don't know.

Please explain your answers.

Section 7 - Minimum standards assessment

Flowchart 3: Commissioning a minimum standards assessment (when minimum standard is EPC band "E")

The assessment

70. As set out earlier, where a property has an EPC of F or G, the owner will need to get a minimum standards assessment which will identify the improvements needed to bring the property up to standard. As the output of the assessment is to aim for a specific EPC rating, we propose that the assessment should be based on the same methodology.

71. Currently, when an owner of a property gets an EPC they also receive a recommendations report, which offers further information on the building and the generic measures that can be applied to the property to improve its energy efficiency and environmental impact ratings. The report shows the improved ratings that would be achieved from applying these measures in the order they are presented.

72. The improvement measures that can be identified on an EPC as relevant to an existing dwelling are assigned by approved software tools based upon the building details input by an EPC assessor. The list of measures is published in Appendix T of the Standard Assessment Procedure ( SAP) methodology document ^[16] and are listed with fabric improvement measures first, followed by improvements to building services and the use of renewable technologies . While an EPC assessor may, where evidence exists, supress individual improvement measures unsuitable for the dwelling, they cannot vary or define new improvements outwith those listed in SAP.

73. The existing EPC recommendations report provides a useful indication of what can be done to a property to improve its rating, but it is not intended to recommend measures to achieve a particular energy efficiency rating, and EPC assessors cannot tailor the package of measures to a specific property. As such we think that it will be necessary to introduce a new minimum standards assessment to identify the improvement needed to a property to meet the minimum standard.

74. The minimum standards assessment will use the current version of the SAP methodology. Where an existing EPC was carried out under an older version of the SAP methodology, or there is no EPC at the backstop date, the assessor would firstly complete an EPC for the property to determine its current rating. If this showed the rating to be E or above no further action would be required to meet the minimum standard. Where the rating was F or G, the assessor would continue the assessment to identify the required improvements.

75. The key features of the proposed minimum standards assessment are that:

• It would set out the lowest cost package of technically appropriate measures to improve the energy efficiency of the property. In the majority of cases this will be up to an EPC of E, but where this is not technically feasible or appropriate for the property the assessment may identify a lower improvement. For example:
  • an assessment may recommend that a G rated property be improved to an F; or
  • an assessment of a property rated as F might only identify improvements that raise the property's score within the F band. In this case the property will be compliant if it is raised to the specific rating (number) that the assessment identifies.
• It would also set out the package to bring the property up to a D, the next step in the standard (see Section 10). This will enable landlords to see the difference between the two packages, and potentially enable a decision to bring the property to a higher standard at that point. Where the property is only brought up to the initial standard of E, at the point at which the property needs to comply with the higher standard the owner would need to commission a new minimum standards assessment to be sure that the assessment would identify the appropriate package of measures, using the latest version of SAP methodology, taking account of the improvements made to bring the property up to the E.

• The minimum standards assessment would use an average cost for each measure based on the figures used in the product characteristics database that supports the EPC process. There are regional variations across the country in the actual costs of works, but we need a consistent approach across Scotland to support the introduction of a national standard. This approach will give an indication of the potential cost of carrying out the recommended improvements, though owners will want to get quotations ahead of carrying out the works. There would be no limit to the cost within the assessment - there is more information on "excessive cost" in terms of carrying out the improvements in Section 9.

• It would use the measures included in an EPC assessment (Appendix T of SAP). We propose that it would also be able to use other measures whose benefit can be modelled within the RdSAP methodology (the specification for the Reduced Data SAP assessment is defined within Appendix S of the SAP document ^[17] ). For example, other Scottish Government programmes, such as Warmer Homes Scotland, currently include reconnection of cut off gas supply; and connection to District Heating Schemes.

• The assessment would focus on improving the energy efficiency rating to an E (or D) where possible. For the vast majority of properties, the least cost package of measures which raises the energy efficiency rating to an E is likely to improve the environmental impact rating of the property, though our modelling suggests that for 7% of properties (around 2,100 homes) in current EPC bands F or G the package of measures would negatively impact on the property's environmental impact rating, for example where gas central heating is recommended for a property with no fixed heating system.

• The assessment will need to be carried out by a person who has a new qualification of "minimum standards assessor". The assessor will offer an enhanced service over and above the EPC, offering more tailored advice as to what can be done, taking account of how appropriate and costly it is and if further investigation would be recommended before deciding on any particular actions. This new role will build upon the skills required of domestic EPC assessors, and the person would have to meet specific requirements in terms of skills, training and quality assurance. The assessor would have the skills to tailor the recommendations to recommend only measures which are technically feasible or appropriate to that property.

• Assessors would be registered on a register of minimum standards assessors, which would be maintained by a body or bodies approved by Scottish Ministers. These approved organisations would register and ensure that members are fit and proper persons who are qualified by their education, training and experience to carry out the duties of a minimum standards assessor.

• The assessment report would be recorded on the EPC register prior to rental (or by 30 September 2021 for the backstop date). It would not need to be updated or replaced until the next time the property was considered to be below standard (for example if the standard is raised over time).

Commissioning and registering the report

76. The owner will be responsible for commissioning a minimum standards assessor to carry out the assessment, and would be able to find a list of local assessors through the register of minimum standards assessors.

77. The assessor will lodge the report alongside the property's current EPC on the EPC register. The owner can carry out the measures in the assessment, or any others they prefer, so long as the result is an improvement to the level required by the assessment.

78. Once the works are done the owner would need to provide proof, for example by commissioning a post-improvement EPC to show the property's current rating meets the standard.

79. If there has been a change in methodology between the minimum standards assessment and the post-improvement EPC, which means that the measures on the minimum standards assessment do not achieve the expected improvements, the property would still be compliant provided the owner has done all the measures on the assessment.

Bringing in a new assessment

80. There will be an additional cost to landlords of the least efficient properties in commissioning this assessment. An EPC on average costs between £30 to £50. Based on initial discussions in 2016 with assessors and other bodies using EPC- style recommendations reports, we believe that a minimum standards assessment will cost in the region of £120 to £160, dependent on property size and location.

81. It will be important that the assessment and any supporting processes are available in advance of the start of the minimum standards, so that owners are able to commission and lodge assessments before the start of any new tenancies after 1 April 2019.

82. We would look to engage with assessors, building standards professionals and others to:

• agree the measures to be included in the assessment and the outline processes involved, including discussing the likely fair costs;
• develop proposals for a minimum standards assessment software tool;
• agree and specify a schema to capture the outputs (recommendations) in the EPC register;
• prototype, test and refine the tool;
• develop and agree a specification of the role and training requirements for a minimum standards assessor;
• rollout training; and
• agree which bodies will be approved organisations.

Consultation questions

The assessment

Question 1.10 - We are proposing that there should be a new minimum standards assessment based on the EPC methodology that will tell an owner how to bring their property up to standard. Please tell us your views on the following elements of that proposal:

(a) that the assessment would use EPC methodology, since that is how we are proposing the standard is set;

(b) that the assessment would work out the lowest cost technically appropriate package of measures to bring the property up to standard, based on the average of costs used in EPC methodology;

(c) that the assessment would set out the package of measures to meet an energy efficiency rating of E, and separately of D, from the property's current rating;

(d) that the assessment would include a calculation of the property's EPC rating before identifying the appropriate measures, where there is no EPC under the current version of the EPC methodology;

(e) that the assessment could include measures which are not currently in the EPC assessment, but which can be measured in the RdSAP methodology. If you agree with this proposal, please provide suggestions for what these measures might be, and what costs should be used for these;

(f) that the assessment would cost in the region of £120-£160.

Please explain your answers, and provide alternatives where applicable.

Question 1.11 - Do you think that the assessment should only recommend a package of measures which improves both the energy efficiency and environmental impact scores of the property? Yes/no/don't know.

Please explain your answer .

Minimum standards assessor

Question 1.12 - We propose to develop a new role of minimum standards assessor.

(a) Do you think that a new role of a minimum standards assessor is needed?

Yes/no/don't know.

(b) If so, what additional skills beyond those of an EPC assessor would be needed?

(c) How long do you think it would take to get this in place?

(d) Who do you think should maintain the register of assessors?

Please explain your answers.

Section 8 - Getting the work done

83. It will be the responsibility of the owner to bring the property up to standard within 6 months of the minimum standards assessment. It will be open to them to install the measures identified in the assessment, or any other measures they choose, provided that the property achieves the improvement identified in the assessment. Once improvements have been made, a new EPC showing the required band may be carried out and lodged on the EPC register to prove that the property meets the minimum standard.

Meeting the costs

84. Modelling suggests that 91% of private rented properties will already have an EPC band of E or above. Owners of properties which meet the standard will not have to make any improvements, though they may wish to contact Home Energy Scotland to help make sure their properties are as energy efficient as possible and to establish if any assistance or advice is available.

85. Where properties do not meet the standard, there will be a cost to carrying out the necessary assessments and improvement works to bring the property up to standard. The cost will be capped at £5000 (see Section 9), with modelling suggesting that on average the cost will be in the region of £1,100 to bring the property up to a standard of E. For this investment the tenants in the least efficient properties will be able to enjoy similar levels of efficiency as those in the vast majority of the private rented sector, and landlords will improve the attractiveness of their properties by doing so.

86. The owner is responsible for bringing the property up to standard, and so the cost will fall to them. As with any improvements in the private rented sector, landlords would have the option of increasing rents to cover the costs. Given the lifetime of measures, and the relatively low cost of improvements needed in the majority of properties, we do not anticipate that any increase in rents would be significant. Landlords would also have to take account of current market conditions in identifying the practicality of increasing rents, and tenants can appeal rent increases where these are unreasonable.

87. There is currently a range of support to help private landlords and tenants to improve the energy efficiency of their properties and reduce their fuel bills. In terms of financial support from the Scottish Government this includes:

• HEEPS: Warmer Homes Scotland provides help to improve properties in the private sector, including the private rented sector. It is targeted at the most vulnerable households and helps install energy efficiency and renewable energy measures. In 2017/18 Warmer Homes Scotland has a budget of £19m. Further information on Warmer Homes Scotland is available by calling Home Energy Scotland on 0808 808 2282.
• HEEPS: Loans provides interest free loan funding to households in the private sector, including the private rented sector. Loans of up to £15,000 are available for installing a variety of measures such as solid wall insulation, double-glazing or a new boiler. Also, landlords with multiple properties are entitled to up to £100,000 of loan funding to help them improve their properties. In 2017/18 £30m of loan funding is being made available through our HEEPs: Loans scheme. Further information on HEEPS: Loans is available by calling Home Energy Scotland on 0808 808 2282.
• The Resource Efficient Scotland SME (Small and Medium Enterprises) Loans Scheme provides interest free loans of £1,000 to £100,000 to Scottish businesses that fall within the European Commission definition of SME (including private sector landlords) to finance the installation of energy, resource and water efficiency measures; and loans at a 5% interest rate for the installation of renewable energy technologies where the applicant is planning to claim the Feed in Tariff ( FIT) or Renewable Heat Incentive ( RHI). Further information on RES SME loans is available by calling 0808 808 2268.
• HEEPS: Area Based Schemes ( ABS) gives grant funding to local authorities to help develop and deliver larger scale fuel poverty and home insulation programmes. Funding is directed to private sector households including those in the private rented sector. In 2017/18 ABS has a total budget of £47m distributed across all of Scotland's councils. Local authorities select priority areas for delivering programmes and can supply further information if needed.

Sources of information

88. As well as funded support, private sector landlords and tenants can get free and impartial advice from Home Energy Scotland ( HES) on energy saving, renewable energy and access to funding, including access to schemes provided by the UK Government such as the FIT and RHI. HES can direct people to loans and grants, as appropriate, and more information can be found online ^[18] or by calling 0808 808 2282. The Resource Efficient Scotland ( RES) programme, funded by the Scottish Government, offers free, specialist advice and support to businesses to implement energy, resource and water efficiency measures that will reduce carbon emissions and translate to cost savings. More information on RES can be found by calling 0808 808 2268.

89. As regulation falls within the broader development of Scotland's Energy Efficiency Programme ( SEEP), we also wish to seek views specifically on what sort of advice, support, and financial and fiscal incentives for landlords or tenants are most appropriate. This includes existing grants and loans and, if appropriate, how we might use devolved tax powers to best support improved energy efficiency. We are keen to understand how all of these incentives can be used to help improve the energy efficiency of properties in the private sector.

Consultation questions

Question 1.13 - What are your views on the existing advice and information provision provided by Scottish Government for landlords and tenants? What changes, if any do you think are required?

Question 1.14 - What financial or fiscal incentives support - such as grant and loans, tax or otherwise - would you find most useful to help to accelerate the installation of energy efficiency measures and help landlords meet any proposed standards?

Skills and consumer protection

90. The requirement of minimum standards is likely to lead to more demand for energy efficiency measures in the private rented sector and it is therefore important that landlords have confidence that work carried out will be done to appropriate industry installation and technical standards.

91. The landlord can choose who they want to carry out works they are paying for, but if they are accessing current Scottish Government schemes then this is restricted, at a minimum, to installers who are PAS2030 accredited.

92. SEEP is looking at how best it can be designed to help build consumer confidence in Scotland and what type of consumer protection framework should be adopted. In doing so we are looking at current best practice amongst existing schemes and programmes and are also analysing the recommendations of the Each Home Counts review ^[19] to see if and how it could be applied in a Scottish context.

93. As part of the development of SEEP we will also be considering whether the supply chain in Scotland has the sufficient capacity and skills to deliver the increased number of installations needed to deliver SEEP's ambitions, including in support of minimum standards. The current SEEP ^[20] consultation is beginning to explore these issues, and we will feed any further evidence from this consultation into that process.

94. We also recognise that there may be specific issues for historic and pre-1919 buildings, which are stone-built and where more specialist skills may be required to bring them up to standard. Home Energy Scotland ( HES), together with Historic Environment Scotland can provide advice. Historic Environment Scotland has carried out research on such properties and has developed a qualification ^[21] covering how these more traditional buildings should be dealt with by installers and assessors.

Consultation questions

Question 1.15 - What impact do you think the introduction of minimum standards would have on local supply chains for energy efficiency works?

Question 1.16 - Do you think it would be helpful for assessors and installers to have a traditional buildings qualification that raises awareness and understanding of energy efficiency measures for older, traditional or vulnerable buildings built prior to 1919? Yes/no/don't know.

Please explain your answer.

Question 1.17 - Do you think there are additional consumer protection safeguards the Scottish Government should consider for the private rented sector? Yes/no/ don't know.

Please explain your answer.

Section 9 - What happens if the property doesn't meet the standard?

Flowchart 4: Proposed process for enforcement by local authority

95. If the owner doesn't ensure that the property meets the standard as set out in Sections 5 and 6 we propose that there should be a penalty, and we think that local authorities should be responsible for enforcing this. They already have powers in relation to the private rented sector, including new powers of third party reporting for breaches of the repairing standard, and there may be opportunities to build on existing systems to enforce an energy efficiency standard in the future.

96. We think that the local authority should be able to issue a civil fine against the owner of a property that has an EPC rating of F or G of:

• £500 for failing to have a minimum standards assessment at the point of rental, or by 30 September 2021 (equivalent to the fine for failing to have an EPC); and
• £1000 for failing to carry out the improvement required by the minimum standards assessment within six months (equivalent to the maximum fine for failing to comply with a repairing standard enforcement order).

97. If the landlord disputes the fine, they will be able to ask the local authority to review the decision. And if the fine is not paid, the local authority can take court action to enforce it.

98. To issue a fine in these situations, the local authority will need to know:

• where there has been a change in tenancy - there may be a tenancy deposit lodged, or a change in council tax records, that would help identify a change in tenancy;
• what properties are covered by the repairing standard ahead of the backstop date - landlord registration processes should identify all the privately rented properties in the area;
• the EPC rating of these properties - local authorities have access to the EPC register and can access reports on new EPCs for rental purposes; and
• the required level of improvement identified by a minimum standards assessment - we propose that the minimum standards assessment would also be lodged on the EPC register.

99. Local authorities also have processes in place for landlord registration which could support the identification of properties over time. And they already have a role in enforcing the repairing standard, which provides another opportunity for being aware of properties to which the standard may apply. For example, where a tenant raises a complaint about a property not complying with the repairing standard, either with the local authority or directly to the First-tier Tribunal, the local authority may wish to consider whether the property is
also compliant with the minimum energy efficiency requirements.

Consultation questions

Question 1.18 - Do you think that local authorities should be responsible for enforcing the standard? Yes/no/don't know.

If not, why not, and what alternative would you suggest?

Question 1.19 - Do you think that the penalty for not complying with the standard should be a civil fine against the owner? Yes/no/don't know.

If not, why not, and what alternative would you suggest?

Question 1.20 - We have proposed the following fines:

• £500 for failing to have a minimum standards assessment
• £1000 for failing to carry out the works within six months of the assessment.

Do you think these proposed fines are appropriate and proportionate? Yes/no/don't know.

Please explain your answer.

Flowchart 5: Enforcement - considering exceptions

Exception - longer timeframe for compliance

100. We think that it should be open to the local authority to give the owner a bit longer to carry out the required improvements before issuing the fine in the following circumstances:

• where there are legal reasons why the work cannot take place within six months of the minimum standards assessment, for example where a sitting tenant refuses to grant permission to carry out the work or assessment, particularly at the application of the backstop date, or where there are protected species that cannot be disturbed at the time to enable improvements to be made;
• where a property will be part of an agreed local authority led area based scheme which will bring the property up to the required standard but will not complete within the six-month period; or
• where there is evidence of a lack of capacity in the local workforce to carry out the assessment in time, or to complete the work within six months of the minimum standards assessment. Given the lead in time to the introduction of the standard this is expected to be a limited issue as owners will be aware of the requirement and should be working to ensure properties are improved in time.

101. In these situations the local authority should agree a revised timescale for the completion of the works, and take enforcement action when that period has elapsed if there is not proof of the required improvements having been made, or evidence of a need for a further extension.

Exception - lower level of improvement carried out than that required by the assessment

102. We also think the regulations should allow for some situations where the owner is only able to carry out some of the improvements in the minimum standards assessment.

103. Technical - there could be situations where it becomes apparent after the assessment that a recommended measure isn't appropriate for the property, for example when a more invasive inspection discovers something which could not have been known during the initial assessment, or where there are protected species which cannot be disturbed to undertake work on specialist advice.

104. Legal - the owner may not have permission to carry out all the works identified by the assessment, for example where listed building consent is subsequently refused for some of the measures, or if other owners do not agree to work to communal elements .

105. Excessive cost - we propose that the cost of improving the property to comply with the minimum energy efficiency standard should be not more than £5000.

• Our modelling suggests that the average cost to bring a property up to an EPC band E is £1,100, and only 200 of the private rented properties with an EPC band lower than E (0.7% of that group) would be above a cost cap of £5000.
• While one option is for the minimum standards assessment to recommend only a package of measures up to the cost cap of £5000, this would potentially limit the number of measures that are recommended in any assessment. Instead, we think that the landlord should be responsible for providing evidence of real-life costs for the package of recommended measures being above £5000. This would have the advantage of being able to take account of any incentives available to the landlord for the required works.
• We propose that the £5000 should include the cost of the energy efficiency measures identified by the assessment, and the cost of the minimum standards assessment but not of gaining planning permission or any incidental work (such as redecorating or condition works). The landlord would be expected to carry out the improvements identified within the assessment that fall within the £5000 cost cap.

106. In the cases of technical, legal or excessive cost situations, the owner should carry out all the other improvements identified in the assessment and provide proof to the local authority to support the decision not to install the others. This proof might include, for example, an expert report on the presence of bats (technical grounds) where this prevents a measure from being installed in that property; a letter from the local authority refusing listed building consent for some of the measures (legal grounds); or quotes from three registered firms showing estimates above £5000, along with evidence of costs of the measures which have been installed (excessive cost grounds).

Review of exceptions applying to a property

107. Where a property has been granted a longer timeframe to carry out the works, the local authority should monitor compliance with this to ensure that the property is brought up to standard within the agreed timeframe.

108. Where there is a legal, technical or excessive cost reason why the full improvement cannot be made, we propose that this should remain valid for a period of not more than 5 years, as these issues may resolve within that time. We think that we should explore the possibility of the EPC register including a field to show where a property is compliant with the standard, even though it is at a lower standard than required by the assessment. This would enable tenants to access information on their property and for local authorities to keep track of which properties require enforcement action.

109. If the property has not been improved as set out in the minimum standards assessment within 5 years, a further minimum standards assessment should be carried out. Section 10 considers what happens when the standard is raised over time.

Condition works

110. In some cases properties will require additional works before energy efficiency improvements can be made. This could be a condition issue, for example where a faulty roof should be improved before installing insulation, or something which is found on further inspection, such as the presence of asbestos where a professional advises that this be removed.

111. We are proposing the standard applies to properties which have to meet the repairing standard, and so there are likely to be other enforcement mechanisms and duties on the landlord to undertake those improvement works. We therefore do not think that these costs should be included in the cost cap, or that there should be an exception from meeting the standard because these works need to be carried out first. But we would welcome views on whether or not it would be appropriate to allow a longer timeframe for compliance to allow these additional initial works to be undertaken.

Consultation questions

Question 1.21 - We have proposed some specific situations where owners should have longer than six months to bring their properties up to the minimum standard. Do you have any comments on these proposed situations in relation to:

(a) the proposed reasons?

(b) what evidence you think the landlord would need to provide for each?

(c) should there be other situations, such as the completion of condition works?

Question 1.22 - We have proposed some situations where we think owners should not be penalised for not carrying out the full improvement identified by the minimum standards assessment. Do you have any comments on these in relation to:

(a) technical reasons

(b) legal reasons

(c) excessive cost reasons

(d) the proposal that this would remain valid for a period of not more than 5 years?

Question 1.23 - For local authorities to be able to enforce and monitor the proposed minimum standards:

(a) what processes do you think local authorities will need to have in place for

(i) normal compliance

(ii) monitoring extended periods for compliance

(iii) monitoring situations where not all of the improvements are made?

(b) what implications would this have for local authorities?

Question 1.24 - What opportunities do you think there are to combine enforcement of minimum energy efficiency standards with other action in the private rented sector?

Please explain your answers.

Section 10 - Raising the standard to an EPC D from 2022

112. We think that minimum standards have an important role to play in improving the living standards of tenants, supporting action to tackle fuel poverty and contributing to Scotland's climate change targets.

113. The proposals we've set out so far will improve the least efficient properties first. But if we are to meet the challenges above, these standards will need to be raised over time.

114. We know that landlords will want to have as much certainty as possible about the future requirements on their properties. In some cases it may be more cost effective to carry out a few more measures now to meet a higher standard than to make incremental improvements over a number of years.

115. And so we are setting out our intention that the standard would be raised to an energy efficiency rating of D at the point of rental from 1 April 2022, and that this would apply to all privately rented properties by 31 March 2025.

116. As set out in Section 3, the draft Climate Change Plan prioritises action to improve energy efficiency to 2025, at which point it assumes continued action on energy efficiency and increased focus on decarbonisation of the heat supply. We think it makes sense to raise the energy efficiency standard to the next EPC rating, a D, to these timescales as well. This would give the same three year timescale for improvements to a D as to an E - by setting out the increased standard now we think that this would encourage owners to make improvements to the D to "future proof" their properties ahead of the 2022-2025 timescale, which will mean that not all properties will need to be improved in that time.

117. The total number of dwellings estimated to require upgrading to an EPC of D from their current rating is 95,000 - 30,000 currently have a rating of F or G, and 65,000 have a rating of E. Of these 95,000 households, 53%, or 50,000 households, are estimated to be in fuel poverty. Raising the energy efficiency of their dwellings from E, F or G to an EPC of D would currently lift 12,000 households above the fuel poverty ^[22] threshold, while the depth of fuel poverty of the remaining households would also be reduced.

118. The cost of meeting a D for the stock whose initial EPC is an F or G can be affected by whether landlords upgrade directly to an EPC D rather than first upgrading to an EPC of E and then D, because the least-cost package of measures in moving directly to a D may be different to the least-cost package of moving first to an E and then to a D. Setting a clear trajectory therefore gives landlords an opportunity to choose the most cost-effective way of achieving the higher level of energy efficiency which will ultimately be required. Furthermore, any disruption to landlord and tenant from upgrade work in the worst performing properties can be minimised by doing the work to meet these standards in a single stage rather than spreading it over multiple stages.

119. Modelling work estimates that the average upgrade cost to raise these dwellings from their initial EPC of E, F or G to an EPC of D is £2,100, giving a total cost of £200 million. Assuming that landlords take advantage of knowing the trajectory to move directly to an EPC D at lowest cost, the additional upgrade cost of setting a trajectory to D rather than stopping at E is therefore around £170 million, at an average of £1,800 per dwelling.

120. Our modelling shows that most common measures in moving from an EPC E to an EPC D are low energy lighting, hot water tank insulation, floor insulation, cavity wall insulation and loft insulation. There is a somewhat greater uptake of more expensive measures: for example, solid wall insulation is modelled as being part of the least-cost package of measures for around 6% of dwellings.

121. The new standard would be introduced in the same way as the initial standard. It would apply at any change in tenancy from 1 April 2022, with owners of properties with an EPC below D having to have a minimum standards assessment for the property ahead of rental, and a period of six months to improve the property. And, all privately rented housing would need to have an EPC of D by 31 March 2025, with any property with an EPC below D to have had a minimum standards assessment carried out by 30 September 2024.

122. The fines and exceptions set out in Section 9 would also be retained. If a property with a valid exception to meeting the E standard is then rented out after 1 April 2022, there is no automatic assumption that the property cannot be brought up to the new standard, as the package of measures required may be different to those for an E and therefore not be covered by an exception. In these cases the owner would be expected to carry out the works required to bring the property up to the D standard, unless proof of a further exception is provided.

123. The £5000 cost cap will apply for works to improve the property to an EPC D. This would mean that, where the property has an energy efficiency rating of E, the owner would require to improve the property to a D within a maximum cost of £5000.

124. There may be situations where even after the backstop date for EPC E of 31 March 2022, the property only has an EPC of F or G, either because the minimum standards assessment recommended a lower level; there was an exception allowing a lower level than E by 31 March 2022 (under the technical, legal or excessive cost provision sets out in Section 9); or because the property has come into the private rented sector since 1 April 2022.

125. In these situations we propose that the cost cap would be cumulative, and would include the £5000 allowed for bringing the property up to E. This would mean that, where the property's EPC rating is F or G, the exception to the D standard would only apply where the total cost of works (including any works previously done towards the E standard following a minimum standards assessment) is in excess of £10,000.

126. Our modelling suggests that around 2.2% of the 65,000 properties which currently have an EPC of E, i.e. around 1,400 properties, would cost more than £5000 to upgrade to a D. Moreover, around 14.9% of the 30,000 dwellings which currently have an EPC of F or G, i.e. around 4,500 properties, would cost more than £10,000 to upgrade to a D. We therefore estimate that around 5,900 properties, or 6% of the 95,000 dwellings which currently have an EPC below D, would not be upgraded to a D, although they would have to be install those upgrades which fall within the cost cap.

Consultation questions

Question 1.25 - Do you think that we should set out now the minimum energy efficiency standard after 2022? Yes/no/don't know.

Please explain your answer.

Question 1.26 - Do you think that the next standard should be to meet an EPC of D at point of rental from 1 April 2022, and in all privately rented properties by 31 March 2025? Yes/no/don't know.

Please explain your answer.

Question 1.27 - When increasing the standard to EPC D, we propose that the cost cap will be £5000 for properties with an EPC of E, and £10,000 for properties with an EPC of F or G (which would include any spend made to improve the property previously following a minimum standards assessment). Please tell us your views about this proposed cap.

Question 1.28 - What are your views on the provisions in general for exceptions to the D standard, including that a property which has an exception from meeting E should not automatically be excepted from meeting D?

Section 11 - Raising the minimum standard beyond EPC D

127. The Strategic Working Group on Fuel Poverty has called for SEEP to have a milestone of EPC C by 2025 to significantly reduce energy efficiency as a root cause of fuel poverty.

128. We share the Group's aspiration to eliminate poor energy performance of a property as a driver of fuel poverty. But we think that there would be challenges in proposing a mandatory target of C as a minimum standard - both for cost and technical reasons, but also in terms of how this would fit with the longer term priorities of the Climate Change Plan.

129. To bring properties up to EPC levels higher than D, owners would need to consider more expensive and invasive measures. Research modelling for all private sector housing showed that the cost of improving EPC levels increased the higher the starting point of the EPC of the dwelling. The average cost of improving properties from EPC E to D was £1,100 compared to £600 to improve properties from EPC G to F. Although average costs for improvements beyond a D to are not available, it is reasonable to assume these would increase further, as more expensive measures would be required to meet this level.

130. For all private sector stock, the research modelling showed a higher proportion of more expensive measures were required for properties to reach a Band D compared to Band E, such as solid wall insulation, floor insulation, boiler upgrades and others. Although corresponding results are not available beyond a D, it is reasonable to assume that higher proportions of more expensive measures would be required to meet a level of C.

131. In considering whether to set a higher standard, we also need to fully understand the approach that is to be taken to decarbonise the heat supply, which will be set out in a future Climate Change Plan. We want to avoid, wherever possible, a situation where property owners upgrade their heat supply to comply with an energy efficiency standard, only to find out that this needs to be replaced by an alternative heating system only a few years later to meet the climate change targets. As the standard increases, these types of measures are more likely to be used.

132. As set out in Section 3, we propose to set the initial standard with reference to the energy efficiency rating to help towards Ministers' aspirations to remove poor energy efficiency as a driver of fuel poverty - but over the longer term it may be appropriate to consider linking a minimum standard to the environmental impact rating of the property (which provides an assessment of its carbon emissions), as this would reflect the direction of travel of the Climate Change plan.

133. Minimum standards will make an important contribution to achieving our climate change targets, but they are not the only tool available to Ministers in driving improvements. Through SEEP the Scottish Government is seeking to create clarity and certainty for property owners and the market, and is committed to keeping under review the role and level of minimum standards in helping to achieve our objectives.

134. As set out in Section 13, we therefore propose that any increase in the standard beyond an EPC of D should be considered once there is further information on the longer term proposals for heat supply in the next Climate Change Plan, and once further work has been done to understand the feasibility of the measures needed to reach these standards. Policy decisions regarding long-term heat decarbonisation are not expected to be made by the UK Government until the next parliament i.e. from 2020.

Consultation questions

Question 1.29 - What do you think the main benefits would be of introducing a minimum standard higher than D?

Question 1.30 - We think that any increase in the standard beyond D would bring new challenges in the form of cost, technical considerations and alignment with the Climate Change Plan.

(a) Are there other new challenges you are aware of?

(b) How do you think we could address these challenges if we raised the minimum standard beyond energy efficiency rating of D?

Please explain your answers.

Section 12 - Assessing impact

135. As set out above, the introduction of the minimum energy efficiency standard will mean additional costs to owners of properties where the EPC is below the required standard, as they will need to get a minimum standards assessment; potentially a post-installation EPC to prove compliance; as well as the cost of the works. There will be no requirement to carry out works above a cost cap (see Sections 9 and 10), and financial incentives may be available for some of the work (Section 8 provides information on what is currently available).

136. There will be benefits to tenants in warmer housing which will be easier to heat, and this could be reflected in the attractiveness of the properties, thus benefiting landlords.

137. Local authorities will have a new enforcement role, although there are likely to be opportunities to build on existing processes for enforcement action within the private rented sector.

138. Certainty of work can benefit the workforce, and we would welcome views on the economic impacts in rural areas in particular.

139. To support this consultation we have carried out several impact assessments including a partial Business and Regulatory Impact Assessment ( BRIA). As well as setting out that our modelling suggests average upgrade costs of £1,100, or £33 million in total, to meet the E standard, the BRIA also notes that upgrading privately rented dwellings to an E will produce average annual fuel bill savings of around £320, or £9.6 million in total. ^[23] Over a 40-year horizon, these fuel bill savings are projected to more than pay for the upgrade costs for the vast majority of dwellings, producing an average net benefit of around £5,200, or £155 million in total, in present value terms. In addition to the reduction in fuel bills, society will benefit from annual carbon savings of 0.04Mt.

140. Our modelling also estimates that upgrading dwellings from an E to a D will produce average annual fuel bill savings of around £180, or £17 million in total, as against an average upgrade cost of £1,800, or £170 million in total. Calculated over a 40-year horizon, the average net benefit in present value terms is projected to be around £1,100, or £102 million in total. In addition to the reduction in fuel bills, society will benefit from annual carbon savings of 0.08Mt.

141. As well as the partial BRIA we have also published an interim Equalities Impact Assessment. We welcome views on our assessment of the impact of the proposals which we set out in these documents, and encourage all relevant parties to respond to the consultation. We will also consider whether there are specific impacts on the groups identified in these assessments, or on children or young people (to inform a Child Rights and Wellbeing Impact Assessment), as part of the consultation phase.

142. We also considered the requirements of a strategic environmental assessment ( SEA) for minimum energy efficiency standards in private sector housing. The screening process determined that plans for minimum standards were unlikely to have significant environmental effects and that an SEA was not required ^[24] .

Consultation questions

Question 1.31 - Please tell us about any potential economic or regulatory impacts, either positive or negative, that you feel the legislative proposals in Part 1 of this consultation document may have, particularly on businesses (including landlords).

Question 1.32 - In relation to the interim Equality Impact Assessment, please tell us about any potential impacts, either positive or negative, that you feel the proposals in Part 1 of this consultation document may have on any groups of people with protected characteristics. We would particularly welcome comments from representative organisations and charities that work with groups of people with protected characteristics.

Question 1.33 - To help inform the development of the Child Rights and Wellbeing Impact Assessment, please tell us about any potential impacts, either positive or negative, that you feel the proposals in Part 1 of this consultation document may have on children's rights and welfare. We would particularly welcome comments from groups or charities that work with young people.

Section 13 - Reviewing the standard

143. The current SEEP consultation is seeking views to help design the programme's monitoring and review framework, and this will drive the framework for monitoring and review of the minimum standards.

144. To monitor the implementation of new energy efficiency standards we will use information from the Scottish House Condition Survey, the EPC register and feedback from local authorities on the rates of compliance and the reasons for non-compliance or exceptions.

145. This information, along with the outcome of any monitoring and review processes within SEEP, we propose will be used to review the implementation of the standard at the E and D levels to identify if there are any improvements that could be made to the process, and to consider whether the standard should be raised further in future, within the context of the wider contribution of standards to the Climate Change Plan and the development of a new long term strategy for tackling fuel poverty.

146. Any decision to raise the standard after 2025 would be taken within the context of this monitoring and review process. As with the introduction of the standard to E and then D, we would look to provide a clear indication well in advance of any future standard to allow the various sectors to prepare.

Consultation questions

Question 1.34 - Do you have any suggestions for the monitoring and review framework?

Question 1.35 - Do you have any other comments on the proposals set out in Part 1 of this consultation?