Landlords have largely complied with minimum energy efficiency rules, but many appear to have done only enough work to bring properties up to the legal threshold, according to new research by Morningstar DBRS.

The firm’s analysis of linked Energy Performance Certificate records for England and Wales found that 13.8% of continuously privately rented properties were initially rated F or G following the introduction of Minimum Energy Efficiency Standards (MEES). By their latest inspection, that figure had fallen to just 1.9%.

However, the pattern of improvements suggests landlords often stopped once properties reached the minimum required standard.

Among rental properties initially rated F or G, 51.8% were upgraded only to EPC band E, while 31.3% reached band D and just 8.3% reached band C or above. By comparison, only 28.2% of initially F/G owner-occupied properties were upgraded to E, while 39.4% reached D and 15.9% achieved C or above.

Morningstar DBRS says the findings are consistent with what it describes as “targeted compliance behaviour” – landlords undertaking the upgrades necessary to satisfy the minimum legal standard rather than investing more broadly in energy efficiency.

Timing

The timing of upgrades also points towards MEES having driven much of the work. Of rental properties initially rated F or G that subsequently improved to E or above, 68.1% received their final EPC assessment between 2018 and 2020, around the introduction of the minimum standards for new and existing tenancies.

The study used an EPC dataset containing 27 million records, with the researchers analysing properties with multiple EPC assessments. About 510,000 properties in the post-2014 sample were continuously privately rented.

The findings could have implications if the minimum standard is raised to EPC C, as proposed for 2030.

Upgraded

Morningstar DBRS says many buy-to-let properties appear to have been upgraded only to the current minimum and could therefore require further investment. It warns that non-compliant properties could face periods without rental income while improvement work is carried out, while properties requiring upgrades could also attract a discount if sold.

“The evidence also indicates that landlords respond strongly to regulations and compliance requirements. The emergence of a jump around the lower boundary of EPC band C suggests that expectations of future policy changes may already be influencing renovation decisions. This may signal that further tightening of minimum standards could generate additional improvements in the energy performance of the rental housing stock.”

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