Labour’s two-year EPC delay buys landlords some time…

But landlords still face some hard decisions

Labour’s announcement last week of a two-year delay in its campaign to tighten energy efficiency requirements for rental homes offers landlords a temporary reprieve. But it does not remove the underlying pressure to decide where they are going with their rental properties. 

The direction of travel is very clear, unless rental properties become more energy efficient they will eventually become unlettable. Costly compliance burdens continue to rise, and many landlords are reassessing whether it still makes financial sense to invest to stay in the sector or sell up now.

The policy move is a pause on the road to energy efficiency for all rentals, it’s not a reversal. Minimum Energy Efficiency Standards (MEES) remain firmly in place, and the longer-term expectation of raising rental homes to higher EPC ratings has not disappeared. 

What’s changed is simply the timeline and with it, the strategic decisions landlords must now make.

What are the MEES rules?

Minimum Energy Efficiency Standards (MEES) regulations in England and Wales require private rented residential properties to have a minimum Energy Performance Certificate (EPC) rating of 'E' or better. It is illegal to rent out or continue letting properties with an F or G rating, unless a valid exemption is registered. Non-compliance can result in financial penalties of up to £5,000, but once the new rules come in under the Renters’ Rights Act fines increase to £30,000 per breach.

To get an exemption, landlords must be registered on the government’s Private Rented Sector Exemptions Register. These exemptions include:

• Where required upgrades exceed the cost cap (now reduced from £15,000 to £10,000)
• Where improvements would reduce property value
• Where all feasible improvements have been made but the EPC still falls short
• Or, temporary exemptions, such as when inheriting a property

Exemptions are not likely to be common, they are time-limited (usually 5 years), that is, they are subject to review, and vulnerable to tightening under future regulations changes. 

While Labour’s two-year delay (until October 2030) postpones the inevitable tightening to an EPC “C” requirement, the current EPC E minimum remains legally binding, and enforcement activity is increasing.

What the delay really means for landlords

Ministers are keen to avoid driving more landlords out of the sector in the short term to avoid adding to a shortage of good rental accommodation in most locations in England & Wales.

The delay appears designed to ease political pressure around housing costs, mortgage stress, and these supply constraints. 

The economic and environmental logic behind improving rental housing efficiency makes sense and remains, and it is not beyond the realm of possibility that future governments may bring even tougher standards than the proposed C rating, presumably B or even A?

A revised EPC algorithm

One complicating factor adding to uncertainty for landlords is the fact that EPCs are in the process of being overhauled. Energy Performance Certificates (EPCs) are undergoing a significant, multi-stage overhaul in the UK, with some methodology changes taking effect from 15 June 2025 and a full, reformed system expected in late 2026. These reforms aim to improve the accuracy of assessments, better reflect real-world energy usage, and align with the UK's 2050 net-zero targets.

The current system has been criticised for its inconsistencies, not accurately reflecting real-world energy usage and for discouraging the move away from gas to electricity, as currently electricity is more expensive. The updated system, particularly with the introduction of the Home Energy Model (HEM), is designed to encourage the adoption of low-carbon heating solutions and provide a more reliable, "fabric-first" approach to improving energy efficiency.

Fabric-first prioritises improving a building's physical components—insulation, airtightness, windows, and doors to minimize energy demand, before installing a new heating system or renewables. This strategy ensures long-term, low-maintenance energy savings, it reduces thermal bridging in walls and roofs, and improves occupant comfort, making it a basis for net-zero construction and retrofit projects.

The current method used for existing homes will be updated to improve accuracy and reduce reliance on default assumptions and minimum data. Assessors will collect more detailed data and therefore inspections will take longer and cost more, but improvements like insulation or new windows will only be considered if evidence such as receipts or installation certificates, is provided.

The new EPC calculation method will better model heating systems, particularly electric heating and heat pumps, and improve how floor area and insulation levels are calculated. Mid-terrace homes and flats may see improved ratings due to less heat-loss, as could other forms of heating.

Smart Readiness is another factor to be taken into account, or the potential for integrating smart technology (e.g., smart meters, solar PV).

The uncertainty for landlords is that following the latest upgrade, their EPC rating could either improve or reduce, depending on various factors.

A new consultation has been launched for the Home Energy Model (HEM) which says: “We're seeking views on how the Home Energy Model (HEM) will be used to carry out Energy Performance Certificate (EPC) assessments, which will use new metrics to evaluate a dwelling’s energy performance. This consultation closes at 11:59pm on 18 March 2026.

Commercial reality approaches

For landlords, the decision now comes down to three broad options: invest now, hold and defer improvements until forced to do so, or sell while there’s still time to gain vacant possession using Section 21. Each of these options carries different kinds of risk:

Upgrading makes sense when the property is in a high-demand rental market, where capital values are still strong, when energy improvements support capital value increase, higher rents, lower voids and the landlord has a long-term investment horizon, perhaps wishing to grow the portfolio.

Improvements such as insulation, double glazing, heating upgrades, and solar installations can enhance tenant appeal and reduce running costs while adding to capital values. However, retrofit costs remain high, government grants are limited, and payback periods may be long, particularly for older properties with solid walls or inefficient layouts.

Selling may be the only rational choice

For those landlords receiving low income-yields, with high mortgage costs, or with older housing stock needing major works, retrofitting may not stack up financially. Properties most at risk include low-value homes, where upgrade costs exceed capital uplift, flats with restricted improvement options, listed buildings or conservation area properties, and homes requiring structural work necessary to meet the higher EPC levels.

The May introduction of the first phase of the Renters’ Rights Act leaves a window of opportunity for landlords to use the Section 21 notice to give certainty to achieving vacant possession relatively easily, without going through what is likely to be a lengthy process under section 8. 

For some landlords, selling before compliance pressure intensifies may preserve capital and reduce regulatory exposure.

The Practical Challenge 

How to retrofit while a property is occupied? Even where upgrades make financial sense, carrying out works in an occupied property can be complex: Access and noise constraints, tenant disruption and complaints, work team scheduling difficulties, risk of rent compensation claims and loss of rental income if works require vacancy or eviction, all present problems. 

Major upgrades such as rewiring, insulation retrofits, heating system replacements, or structural improvements are often simply impractical without vacant possession. It creates a real-world tension between maintaining rental income, preserving tenant relations and achieving full regulatory compliance. 

The Section 21 Window 

A critical short-term factor is the abolition of Section 21 when the Renters’ Rights Bill comes into force in May.

Until then, landlords retain a shrinking window to regain possession. This is legally permissible but politically and ethically sensitive. While Section 21 remains lawful, it must be used correctly, and landlords should be mindful of the many loopholes that tenants can find to block it, tenant welfare and reputational risk.

Nevertheless, for landlords facing expensive compliance or uncertain returns, this may be the last straightforward opportunity to restructure their portfolios.

Upgrade or exit, a typical case 

A two-bed Victorian terraced house in the North of England currently with an EPC rating or D (borderline) has a market value of £165,000 and monthly rent of £825. The landlord has a mortgage outstanding of £110,000 and pays interest rate: 6.2%

The estimated upgrade costs to future-proof the property include loft and wall insulation at £5,200, heating system upgrade with a new central heating system at £5,600, double glazing improvements at £3,800, electrical upgrade at £2,400 and contingencies & certification at £2,000. Gives a total upgrade cost of £19,000.

Option 1 - invest and retain. Total capital invested is £19,000 with possibility of a cap at £10,000 (could be more depending on the property value). The expected rental uplift is + £75 per month (annual uplift £900) with a payback period of 15 to 20 years (before financing costs). This gives a marginal financial return, a long payback period.

Option 2 - sell with a tenant in situ. The expected sale price in the region of £145,000. Demain may be limited but potentially a faster exit, but with weaker capital recovery.

Option 3 - regain possession, renovate or sell vacant. The sale price with vacant possession is in the region of £165,000–£172,000. There’s an option to renovate and re-let at higher rent or sell for more. This gives a higher capital recovery but requires a lawful possession strategy. Another factor to take into consideration when selling is, there may be a substantial capital gains tax (CGT) bill?

Rental supply

If large numbers of landlords choose to sell rather than upgrade, the rental sector could shrink even further. The potential consequences include rising rents due to scarcity, greater competition for rental homes and more pressure on local authorities for emergency and social housing.

Ironically, there could be a major conflict between energy efficiency goals and rental housing affordability, if a substantial number of landlords exit instead of investing.

What can landlords do now?

The delay creates a short but valuable planning window. Landlords should check their EPC ratings and exemption status. They should obtain realistic retrofit estimates and do a numbers exercise to weigh their options rationally.

It’s a useful delay, but…

The delay helps but it does not remove the inevitable – some hard decisions are necessary

Landlords still face rising compliance costs, further political risk, and shifting tenant regulations. Some will invest and professionalise by expanding their portfolios, while others will weigh their options rationally and conclude that the numbers just don’t work

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[Main image credit: Kelly]