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If you're not new to the Scottish property market, you'll doubtless have at least a passing acquaintance with EPCs. However, let's take a closer look at them, at why they matter for landlords and how they're changing.

Anyone selling or letting residential property in Scotland has a legal obligation to obtain an EPC (Energy Performance Certificate). The EPC is designed to show the property's energy efficiency. This allows a buyer or tenant to make a fairly accurate estimate of the property's energy usage - and so how much it might cost to light, heat and maintain it. It also includes the Environmental Impact Rating of the property. This gauges the property's carbon dioxide emissions and, consequently, its effect on the environment. A higher Environmental Impact Rating means that the property has a lower impact on the environment. Finally, the EPC includes recommendations for making the property more energy efficient and hence cheaper to run.

While it's not an exact science, homes with more favourable EPCs may fetch higher sold property prices. And, while a good EPC is perhaps less likely to be reflected in rental take, the potential effect on the property's capital value is not to be underestimated. There's also the possibility that a highly energy efficient property will be more attractive to tenants, and so will rent more quickly. This will reduce a landlord's exposure to costly void periods.

A to G scale

An EPC certificate measures energy efficiency on an A to G scale. A is the most efficient, and G the least efficient. The property's scoring on the scale is depicted in an easy-to-understand coloured chart that is similar to the energy efficiency charts attached to new appliances.

How the EPC applies to rental properties: now and in the future

Although the EPC applies to all residential properties in Scotland, landlords have specific duties. Presumably, this is intended to reflect the fact that, unlike owner-occupiers, tenants have limited ability to improve a property's energy efficiency.

Plans to change the EPC regime as it applies to the rental market have been in the pipeline for some years. The dual aims behind them are to reduce the cost of heating and lighting for tenants while also reducing the property's environmental impact.

Originally, the changes were to be legally enforceable from 2025. However, this has been pushed back due to the ongoing impact of the Covid-19 pandemic. As a result, the new EPC regulations will apply to Scottish rental properties in the following ways:

- From 2025, any property marketed for private rental in Scotland must have an EPC rating of at least C.

- From 2028, every property that is "actively rented" in the Scottish private rental sector must have an EPC rating of at least C.

Exceptions will apply to properties where it is either not technically feasible or not cost-effective to bring them up to a minimum C rating.

Essentially, therefore, between 2025 and the end of 2027, rental properties need only achieve an EPC C rating (or better) when they come up for rent. However, prudent landlords will not want to waste this period of grace and will use it to ensure the properties in their portfolios are brought up to the new minimum standard.

Funding the EPC changes

The cost of bringing a property up to a minimum EPC rating of C will concern many landlords. At a time when economic concerns are deepening, the prospect of achieving better sold property prices or a quicker sale at some unspecified time in the future may not outweigh immediate worries over funding necessary improvements. Some landlords may find that they are eligible for funding assistance. Home Energy Scotland should be the first port of call for anyone wanting to investigate this possibility.

Who can issue an EPC certificate?

Only Scottish Government-approved organisations are allowed to issue EPC certificates. Approved organisations are listed on the Scottish EPC Register, which is available online.

Validity of EPC certificates

EPCs are valid for ten years. However, any landlord who invests in improving the EPC of any property they rent out should ensure they have a new EPC survey carried out. They should consider doing this even before the new obligations come into force in 2025 and 2028. This, of course, is because an improved EPC rating will allow a landlord to advertise a property that is more energy efficient. And, as we've already noted, this is likely to be attractive to would-be tenants, especially at a time of rising prices.

Where to display an EPC certificate

An EPC certificate for a rental property must be displayed inside the property. It must also be included in every advertisement for a property for rent. Failure to include the EPC certificate in a rental advertisement exposes the landlord to a fine of at least £500.

What to expect on an EPC certificate

First, it may be important to note that the Scottish EPC certificate has a different format from those used in England, Wales and Northern Ireland.

Secondly, note that Scottish EPCs issued before 2017 may have a different format from more recently issued ones. However, the essential information will remain broadly the same.

A post-2017 EPC will begin with a chart indicating estimates for the property's current and potential energy costs (heating, lighting and hot water). Obviously, from a practical perspective, this is very helpful in assessing how much the property will cost in terms of utility bills. Furthermore, the use of a chart is intended to make it as easy as possible to compare the energy efficiencies of several properties.

The chart also includes a column estimating the potential running costs if the property was made more energy efficient. Usually, these cost savings are represented as X amount over Y number of years. High potential savings may discourage would-be tenants, who may worry that the landlord is not as invested in either the upkeep and maintenance of the property as they should be or in their tenant's financial situation. Unless cost is a real barrier, improving a rental property's EPC rating ought to be an obvious choice for a landlord.

The EPC report then moves on to a comprehensive breakdown of every section of the property (walls, roof, floor, windows, heating, hot water etc.). It will describe each section and give them an energy rating of between one and five stars.

The heat demand section looks at how much heat it is expected to take to heat the property and how insulation use can reduce this.

Finally, the EPC includes recommended improvements.

 

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