Energy Performance Reforms: A Tale Of Two Sectors

Recent Government responses to consultations on the energy performance of buildings regime and the private rented sector (PRS) confirm a clear policy direction: residential property is subject to accelerating reform, while commercial property remains largely untouched.

Residential property set on a clear regulatory path

For residential property, the Government has confirmed the introduction of a new EPC C equivalent minimum standard for the private rented sector, with a single compliance date of 1 October 2030 for both new and existing lettings. This provides residential landlords with certainty on both the standard to be achieved and the timeframe for compliance.

Alongside the higher minimum standard, the methodology used to calculate the rating of residential EPCs will fundamentally change. The existing single cost-based metric will be replaced by four new headline metrics:

• Energy cost
• Fabric performance (such as double glazing and insulation)
• Heating system
• Smart readiness (e.g. the use of smart meters and other technologies to help decarbonise homes).

There will be secondary metrics covering energy demand and carbon.

This shift reflects a more nuanced assessment of building performance and is intended to better inform both landlords and tenants.

The changes, which were originally set to take effect in October 2026, are now anticipated for the latter half of 2027.

Widening of enforcement and scope for residential property

EPCs will be required at the point of marketing, rather than at sale or letting, and the MEES regime will be expanded to capture a broader range of residential property, including:

• whole HMOs (houses of multiple occupation) where individual rooms are let
• short-term rental properties such as holiday lets
• listed buildings

The Government has stated that it is going to undertake further work on its proposed position for all private rented buildings requiring a new EPC mid-tenancy when an existing one expires. 

New exemptions framework

The Government has confirmed changes to the exemptions framework for residential landlords, which will include:

• A cost cap of £10,000 inclusive of VAT (up from the current cost cap of £3,500)
• 'All relevant improvements made' exemption
• Solid wall insulation exemption
• Third party consent exemption
• 'Negative impact' exemption
• New landlord exemption that will be available for a maximum of 6 months after purchasing a property

These changes are designed to balance carbon reduction ambition with economic proportionality, while still pushing the residential sector towards higher energy efficiency.

Possibility of a portfolio exemption

The Government has also committed to exploring the feasibility of a portfolio exemption. This would allow landlords with larger portfolios to multiply the cap cost by the number of properties they have (up to a set amount) and utilise this total amount across their properties to meet the higher EPC standard.

Likely impact of the PRS Database

The planned PRS Database under the Renters’ Rights Act is expected to strengthen compliance by enabling local authorities to more easily monitor whether residential properties meet EPC requirements.

Proposed timetable

Updated PRS regulations are intended to come into force in 2027, with compliance required from 2030.

Minimal reform for commercial property

In contrast, the position for commercial property is marked by relative silence. The consultation on commercial property minimum energy efficiency standards (MEES) in 2021 proposed a minimum EPC rating of C by 2027 and B by April 2030. However, the Government’s recent responses contain no substantive proposals for reforming MEES in the commercial rental sector, and there is therefore no confirmed trajectory for tightening minimum standards for commercial buildings. Many in the industry expect that that a minimum EPC rating of B will be introduced at some point, but this remains subject to speculation in the absence of clarity from the Government. 

According to the British Property Federation's 2026 annual analysis of EPC ratings, 4 out of 5 commercial buildings in major English cities have an EPC below B. As Rob Wall, Assistant Director with the BPF, explained in a press release earlier this year "clarity on future standards is critical to increasing demand, attracting investment and building green skills and supply chains."

The Government has confirmed, however, that EPCs for commercial properties will retain their existing methodology. The current carbon-based Environmental Impact Rating (EIR) will continue to apply, with no changes proposed to how commercial EPCs are calculated.

Is there any remaining alignment between the residential and commercial sectors?

The only areas in clear alignment between the two sectors are:

• The 10-year validity period for EPCs, which will continue to apply across all property types, including EPCs issued under both old and new metrics
• The new requirement to have an EPC at the point of marketing
• A proposal that listed buildings will be included within the scope of EPCs.

Conclusion

The Government’s flurry of recent announcements underline a decisive policy focus on improving the energy performance of homes, particularly within the private rented sector.

For commercial landlords and investors, however, the absence of meaningful reform creates uncertainty and a barrier to energy efficiency investment. Whether this regulatory imbalance is temporary remains to be seen, but for now the contrast between residential and commercial property could not be clearer.

Even so, prudent commercial landlords would be advised to plan for energy efficiency work, if they have not done so already. It seems inevitable that higher MEES standards will be required in the future. At some point, it is likely that the story of the two sectors will follow a similar plot, with the importance of energy performance regulation running through both sectors as a consistent theme.

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