EPC policy…the road to tenant hell?

The road to hell is paved with good intentions. Like being obliged to have an EPC to rent a property.

So, I’m a landlord and a homeowner. I have in the distant past been a tenant. When I buy a home, I get a full survey to tell me about the structure of it, whether it’s worth the money, what problems there might be. In theory a survey telling me something about energy use isn’t a bad idea. But energy use isn’t the only factor. Energy security is another. If the electricity goes off, can I still heat it? Does it have photovoltaics or a solid fuel stove? And can I still boil a kettle so is there a gas hob? As the occupier, do I have some choice over energy use?

Having a report available online before I decide to go and view the property may save me a bit of time. In reality, I will find out from the surveyor before I purchase but it’s nice to know a bit more about the property before I fork out £500-1000; as a tenant having better information on the property might help me make a good decision. But only if it’s good information and only if I have choice.

In practice, as a landlord the last time I had to do an EPC I read the report and knowing the property well I thought “…that’s b******s.” The EPC report was relying on assumptions that were wrong; some of the recommendations would damage the property but there were other things that could be done that would be more useful in energy performance terms either to me as an owner-occupier or to a tenant that weren’t mentioned at all in the EPC. The tenants never commented on the EPC anyway and I doubt they would have understood it even if they’d read it. Having an EPC allowed me to rent the property so having an argument with the EPC assessor over the report was pointless; the EPC was just ticking a box and having ticked that box and supplied an EPC to the tenant to be legally compliant we all ignored the EPC for the worthless piece of paper that it was. We just focused on important things, like servicing the gas boiler, ensuring the property was safe for the tenants.

Whether it’s driven by concerns over climate change or concerns for tenants’ energy bills there are some proposals out there suggesting that at some point in the future a landlord might not be able to rent a property if it doesn’t meet EPC band C. Most properties are at EPC band D. As a landlord, the main reason I’m on Property 118 is to learn more, stay ahead, be able to plan for the future. The best bit of information I’ve been able to find about the EPC system via a Google search is this one.

But this document tells me that the EPC system is a Black Box. It relies on you putting information into some kind of computer system which then throws out garbage that you ignore because it’s not useful. As a landlord I’m trying to plan. What should I do if anything? What is it going to cost me?

When it comes to cost one of the key things I’m interested in is not just what improvements am I likely to be obliged to make to move from Band D to C: It is also, will these improvements all be treated as capital expenditure (that I have to finance from further borrowings) or revenue expenditure that I can deduct from rents and carry losses forward to future years in the normal way. I can’t find the answer to that question.

On the basis of the only information I can find, it’s likely that if I am obliged to meet Band C I am going to have to remove the tenants to do it. It also looks as though I can’t deduct all of the expenditure so that means when I put tenants back in (*if* I put tenants back in) then that will be at a much higher rent. There will be an extended void period so the tenants will have to find accommodation elsewhere and if lots of landlords decide not to rent anymore that will help to drive rents up. Tenants will be faced with higher rents so they will probably not benefit from better EPCs. They will just trade a vague promise of lower energy bills for the certainty of higher rents. And that’s even before you consider their energy security.

How much better would it be if there was no obligation to move to band C but you had an EPC system that actually worked? If tenants had a choice that effectively said, “…you can rent this property if you want to but you may have higher energy bills.” Of course, that system does rely on having an EPC system that works and a black box that does not spit out garbage that is not useful.

If tenants had such a system…a system where they could continue to rent even below Band E but they had useful information on energy bills…then tenants would have greater choice. Anything that reduces tenant choice and reduces supply is going to drive rents up. Not having costs of improvements tax deductible, including the financing costs, is also going to drive rents up just as rents are being driven up by higher finance costs now.

So, does anybody on Property 118 know what the tax treatment of all the costs required to finance EPC improvements to move from Band C to D is going to be?

If so, can you please enlighten me and everybody else.

Beaver

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