Energy Efficient Scotland development: consultation analysis

Private Rented Sector

Extending PRS Standards to EPC Band C

The consultation paper explains the Scottish Government’s intention to bring forward regulations later this year to require landlords in the PRS to ensure, at change of tenancy, their properties meet EPC Band E from 1 April 2020 with all properties meeting this standard by 31 March 2022. The standard then increases for changes of tenancy to EPC Band D from April 2022, with all properties meeting this standard by 31 March 2025. Looking further ahead, it is proposed that a minimum standard of EPC Band C should initially apply to properties where there is a change in tenancy after 1 April 2025. Where the EPC shows a Band D or lower, the owner will need to undertake works and lodge an updated EPC showing an energy efficiency rating of Band C or above, unless exceptions have been registered with the relevant authority. Properties failing to meet the minimum requirements would be subject to civil fines.

Question 7 - What are your views on using change of tenancy as a trigger to require the increased standard?

In total, there were 98 comments at Question 7.

Change of tenancy is an appropriate trigger

A majority of respondents expressed broad agreement with using change of tenancy as an appropriate trigger with comments including that it is sensible or logical, reasonable, obvious or useful. It was noted, as outlined in the consultation paper, that high turnover rates in the private sector mean that change will be driven relatively quickly. Other positive reasons given for use of change of tenancy as a trigger were that:

• It limits disruption for tenants.
• More extensive works are possible when a property is empty.
• Change of tenancy is also the time when many statutory checks and other refurbishments are carried out.

While agreeing that change of tenancy is an appropriate trigger point, respondents also identified potential difficulties, or highlighted issues they thought would need to be addressed. Those raised most frequently were that:

• Tenants with long leases could miss out on energy efficiency improvements without an alternative trigger or a backstop date being in place. The possibility that the policy might encourage longer tenancies was also raised.
• Enforcement will present problems as local authorities do not have access to tenancy information, or that details on how enforcement could work are needed.
• Local authorities will require additional resources if they are to be responsible for enforcement.
• Landlords will require advice and assistance, including access to funding at favourable rates. Tax incentives via the reintroduction of the Landlords Energy Saving Allowance were suggested.
• Care will be needed to ensure improvements are cost effective for the tenant and that any increases in rent levels are offset by reduced fuel bills.

Respondents also raised a number of issues relating to the lengths of tenancies, including that changes of tenancy can be unpredictable making it difficult for landlords to act quickly, or that landlords should be encouraged to make improvements on a planned basis - for the same reason. It was also argued that thought needs to be given to properties or areas where lets are typically short term, for example for short term workers or students, or that the policy should only apply to tenancies that exceed a minimum length.

Other points, each made by a single respondent, related to: the need to improve the EPC database required for enforcement; the need for an awareness-raising campaign; and the need to clarify that the energy efficiency rating at the date of landlord registration renewal is not grounds for non-compliance where there has been no change of tenancy.

Some respondents who agreed that change of tenancy would be an appropriate trigger point also expressed wider concerns relating to the Energy Efficient Scotland proposals, either with use of EPCs, proposed EPC levels and timescales or probable costs, or with the principle of any mandatory action. One ‘private landlord or property management’ respondent noted that their tenancies last an average of 19 months and argued that setting additional targets for landlords to meet at short intervals will cause some to exit the sector.

While agreeing that change of tenancy could be used as a trigger point, a small number of respondents noted potential alternatives, most commonly a trigger point at landlord registration or renewal. ‘Local authority or interagency partnership’ respondents were among those making this point. Other ideas, each put forward by a single respondent were: inclusion of a minimum energy efficiency requirement in the Repairing Standard, allowing enforcement via the Housing and Property Chamber First-tier Tribunal; or adaptation of the Short Assured Tenancy^[7] - which is renewed at 6 month intervals - to incorporate a declaration by the landlord that a property meets the energy efficiency standard in place at the time.

Change of tenancy should not be used as a trigger

Respondents who opposed use of change of tenancy as a trigger, predominantly ‘individual’ respondents, generally expressed objection to other aspects of Energy Efficient Scotland policy, arguing that proposed EPC levels are not realistic in some cases, costs to landlords are too high, property may be left empty, and that the size of the PRS will be reduced.

In addition, a small number of respondents argued:

• Change of tenancy would be difficult to enforce as a trigger and that landlord registration or re-registration would be a preferable trigger point. Two ‘third sector’ respondents were among those making this point. It was argued that using change of tenancy is not likely to be effective in meeting policy objectives since local authorities neither know when there is a change of tenancy nor have the resources for enforcement and, as a result, improvements will not be enforced until a backstop date.
• Energy efficiency standards should be the same across the board or that varying standards for different tenures will create issues that need to be resolved in buildings with mixed ownership.
• Many leases are relatively short and PRS tenants are now only required to give 28 days’ notice to end a tenancy - too short a time in which to arrange improvements.

Respondents who suggested landlord registration or reregistration should be used as a trigger argued advantages to be that: this happens on a regular 3-year cycle; an EPC is required as evidence of compliance; and that local authorities already manage the process.

Question 8 - What are your views on using 1 April 2025 as the date to start applying the minimum standard of C when there is a change in tenancy?

In total, 101 respondents answered Question 8.

1 April 2025 is not the right date

A majority of respondents who expressed a clear view did not think 1 April 2025 to be the right time to start applying a minimum standard of EPC Band C when there is a change in tenancy. ‘Individual’, ‘local authority or interagency partnership’, ‘private landlord or property management’ and ‘professional or representative body’ respondents in particular took this view. Reasons given most frequently were that

• The date is, or may be, too early.
• The minimum standard is too high.
• The proposals are not achievable, not practical or not possible, particularly for older properties or in rural areas.
• Owners will sell and property will be lost from the PRS, or rents will increase – either to cover costs or as a result of reduced availability in the sector.

In contrast, a very small number of respondents argued that the standard should be higher (Band B) or that implementation should not be delayed until 2025.

Among respondents who suggested alternative start dates or minimum standards the most frequent suggestion – from seven respondents - was Band C in 2030. Alternative proposals, each made by only a very small number of respondents were:

• Band C in 2028.
• Band C in 2032.
• Band D in 2025.
• Band B in 2025.

Other suggestions were that requirements in the PRS should be: the same as for the social rented sector; the same as for the owner occupied sector; or should be equivalent across all sectors. It was also argued that there should be greater focus on introduction of mandatory measures in the owner occupied sector rather than implementing further requirements for the PRS.

Additional points raised included that requiring Band C by 2025 means there is less time available for technical innovation, and also that there may be insufficient time for implementation of the Short Life Working Group’s recommendations for improving the supply chain. (These recommendations are discussed at Question 10.) There were also comments on the EPC process - that improved accuracy or changes to methodology are needed, or that the Scottish Government is failing to understand the EPCs limitations.

1 April 2025 is the right date

Respondents who agreed that 1 April 2025 is the right date to start applying the minimum standard of C when there is a change in tenancy included ‘building and component manufacturer and services’, ‘energy related private sector’ and ‘local authority or interagency partnership’ respondents. In some responses, the date was suggested to be reasonable or sensible, to provide certainty and to allow landlords time to plan. Narrowing the gap in standards between social housing and the PRS was also highlighted as beneficial.

A small number of other respondents agreed with the date and the minimum standard proposed, but not to introduction at change of tenancy.

The need for effective awareness-raising both for landlords and tenants and for financial support to landlords were both highlighted. It was noted that Band C can be hard to achieve, potentially requiring solid wall insulation (SWI) or renewable generation such as solar or heat pumps which may be difficult in buildings in multiple ownership. It was also noted that, as stated in the consultation paper, exemptions will be needed in some cases, but it was argued that care should be taken to ensure exemptions are not exploited.

The importance of providing certainty to the supply chain, and of the supply chain being in place were also noted.

Respondents also highlighted the economic benefits for landlords of long-term planning, going straight to Band C in one go, rather than taking an incremental approach. It was noted that such a course of action would also have benefits for tenants (less disruption and reduced fuel bills) and for local authorities (less enforcement work).

It was observed that the proposals would leave a period of 5 years between start date (2025) and backstop date (2030), as opposed to the 2-year period for achieving Band E and the 3-year period reaching Band C. Since climate change targets are challenging, the Scottish Government was advised to provide additional support to landlords to encourage achieving Band C before the backstop date.

Some respondents, including several ‘local authority or interagency partnership’ respondents, did not express a clear opinion on the proposed date and standards. Their comments included observation that the proposed requirements are ambitious or challenging.

Points on enforcement included both that this may be challenging and that an agreed and fully resourced enforcement procedure must be put in place. The ‘local authority or interagency partnership’ respondent making the latter point argued:

Before this change is scheduled to take effect there is a need to fully define how and by whom this will be enforced. It is likely that unless the compliance regime is fully resourced the date will be wholly academic with no subsequent change.
Local authority or interagency partnership respondent

Other points raised, and not already made elsewhere were:

• Bringing Band C forward to 2025 would allow current targets for fuel poor households to be met early in this sector.
• There is a risk that additional costs of earlier improvement might impact buy-to-let mortgage affordability.
• Criteria for exemptions are yet to be confirmed, but may limit the number of properties required to achieve Band C.

The consultation paper notes that, under regulations to be brought forward later this year, the cost of required works to improve a PRS property to Band E will be capped at £5,000 with a further £5,000 cap on work to reach EPC Band D. However, it is proposed that the required level of work to achieve EPC Band C should be determined by what is technically feasible and cost-effective. Work is underway to further define cost-effective and a definition will be published in due course. Technical feasibility will be determined through an assessment of the property and work, via a Short Life Working Group, is underway to develop this new assessment.

Question 9 - With regards to providing a useful tool to landlords planning and executing improvement works, what are your views on basing any cap of required works on a definition of cost-effectiveness and technical feasibility?

In total there were 97 comments at Question 9.

Several respondents noted that it is difficult to comment until definitions of cost-effective and technically feasible are available or argued that clear definitions must be provided. It was also suggested that definitions should take account of wider benefits that are ‘socially but not individually cost effective’ in terms of reduced carbon emissions, improved health, or reductions in fuel poverty.

‘Local authority or interagency partnership’ and ‘professional or representative body’ respondents were among those who expressed broad support for the concept. Suggestions included that the proposed approach is sensible, practical or reasonable. For example, a ‘local authority or interagency partnership’ respondent observed:

We consider it to be a rational and reasonable approach to base the cap on the individual property rather than a fixed cap; fixed caps tend to encourage pricing to coalesce around the value of the cap and can result in higher costs as a result, and can also rule out higher-priced but cost-effective solutions.
Local authority or interagency partnership respondent

Financial pressures on landlords were also highlighted, with several respondents citing a potential risk of increased rent levels or a reduction in the size of the PRS. Some respondents highlighting cost pressures argued that the current £5,000 caps for Bands D and E are too high or argued that the ‘cost-effective and technically feasible’ definition should apply at all EPC bands. It was also suggested that phased introduction of standards with separate caps could encourage cheaper measures to be selected at each stage and that, rather than three separate caps, it might be better to have a cap based on a move to Band C. It was argued that any cost cap should not take account of spending before the legislation is introduced and should not be inclusive of funding through no-cost finance, supplier obligation or grant funding.

Several respondents commented on the figure of £3,500 quoted in the consultation paper as the average spend required to achieve Band C. It was argued that this is not representative for many properties and is, in any case, a significant amount in relation to typical rent levels in rural areas.

A variable spending cap, to take account of different building styles and localised costs was suggested and that local authorities could be given authority to develop their own exemption levels dependent on these factors. A relationship between the level of spend required and rent levels, property value and property size were all proposed. It was noted that a flat rate cap, regardless of property size or value, could be advantageous for landlords with bigger properties.

Cost effectiveness

The importance of the method chosen to define what is cost effective was highlighted, with an argument that there is no single correct solution. One respondent suggested that:

If the definition is too broad, then too many properties will fall into this category and it will act as a caveat for landlords to avoid implementing measures.
Academic respondent

Other respondents argued that the definition should be such that the ‘vast majority’ of PRS properties can be improved, that a broad range of the most vulnerable tenants are helped, or that landlords are encouraged to carry out extensive energy efficiency improvements. Separate tests of what is cost effective for the landlord and for the tenant were also suggested, with the latter guiding government policy on the levels of finance provided to deliver benefits to health or the environment.

The definition of cost effectiveness was noted to have particular implications for installation of SWI which, it was argued, will not be cost effective for certain properties. Financial support for SWI was therefore suggested to be needed. Double glazing and microgeneration were also suggested unlikely to be considered cost effective in terms of payback. With respect to microgeneration the importance of the Renewable Heat Incentive (RHI) was highlighted, and it was argued that microgeneration systems will not become cost-effective without mass market uptake and economies of scale.

A definition of cost-effectiveness was also seen as potentially excluding works in the most rural areas where installation costs are likely to be highest. Grants, loans or assistance with lower installation fees were suggested to be necessary for work to go ahead. Older, rural detached properties, cited as the sector that probably most needs upgrading, were also seen as likely to miss out on major improvements.

With respect to the concept of payback over the lifetime of a measure, the importance of accurate data, independent of manufacturers, was highlighted. Given the potentially high costs of some measures, it was suggested that rather than payback over the lifetime of a measure the criterion should be:

• Energy payback over 3 years
• A reasonable return over 5 years
• Payback over 10 years

It was also observed that what is cost-effective and technically feasible will change over time and that it will be important to keep definitions under review.

Making it straightforward for both landlords and the supply chain to determine whether proposed measures meet the definitions was suggested important, and making simple modelling software accessible to landlords was proposed.

Technical feasibility

Points raised with respect to what is considered technically feasible included that a definition will need to take account of the wide variety of building types within the PRS, in both urban and rural areas. Potential difficulties in buildings with multiple ownership and/or different tenures were also noted. Suggestions included that:

• Technically feasible should mean that a measure can be installed and achieve the desired impact, without any negative knock-on impacts.
• It should be based on a professional technical assessment that is specific to the property.
• There should be provisions with respect to buildings that are listed, in national parks or in conservation areas. Further research to establish realistic targets and solutions for improving energy efficiency standards in listed buildings was proposed.

Exemptions

It was suggested that exemptions will be necessary, particularly for traditional buildings, and that details of exemption criteria are needed, but also that the Scottish Government should be clear about how exempt homes will eventually be raised to the minimum standard before setting an exemptions policy. Addition of a ‘compassion exemption’ allowing vulnerable tenants to refuse works was also proposed.

Other comments on exemptions tended to focus on the need for a system to be rigorous, with a risk that it could otherwise be open to exploitation. It was argued that:

• EPC assessments should be subject to quality checks to ensure there is no incentive for landlords to bend the rules.
• Decisions on exemptions must be made by appropriately qualified professionals. Independent examination of requests should be done at a local level.
• A minimum number of quotations should be submitted as evidence to ensure prices are not inflated. Alternatively, confidence in the independence of quotes could be provided by using a database or public forum to allow installers to bid for work.
• Exemptions should be reviewed on a regular basis. Suggestions included that a reapplication could be required at 2-year, 3-year or at least 5-year intervals, but not at each change of tenancy.

Prompt processing of exemption requests was argued to be of particular concern if change of tenancy is used as a trigger point, as delays could result in properties being left empty.

It was also argued that both EPC methodology and EPC reports must be improved, including measuring actual performance and being tailored to a particular property to ensure inappropriate measures are not recommended. It was suggested that, at present, not all EPC assessors are qualified to carry out a detailed technical feasibility assessment. With respect to use of modelled data, a wide-scale monitoring project across Scottish housing was suggested, to inform decisions based on actual performance rather than theoretical assumptions.