Real estate

The Government is proposing to raise the minimum energy efficiency standard required of privately rented homes in England and Wales to the equivalent of Energy Performance Certificate (EPC) C by 2030. With a new Energy Efficiency Rating (EER) methodology also tabled for 2026, landlords will be need to understand what an EPC C rating looks like under the new metrics. 

The current minimum energy efficiency regulations (MEES) require privately rented homes to meet a standard of EPC E before a property can be let, unless a valid exemption applies. For dwellings, the EPC E standard is based on the EER, calculated using modelled energy costs per square metre based on standardised heating patterns, temperatures, and fixed fuel price assumptions. 

The latest proposals raise several questions for private rented sector landlords:

• Minimum spend: Landlords who have spent at least £15,000 on energy improvements for a unit which still does not meet the minimum EPC rating would be able to register an exemption. The Government is seeking feedback on whether that cap is the right level, and whether the exemption period (currently set at five years) should be extended to ten years. Landlords will want to know what financial help will be available to them to pay for these works – will the Green Deal be revitalised? If not, how will their interest payments on any works loans be treated?
  
  
• Transition period: It is proposed that new tenancies would have to meet the higher standard from 2028 and all tenancies, new and continuing, would be required to meet the higher standard by 2030. Landlords should be able to rely on their current EPCs, meaning that properties with an EPC rating of C obtained before 2026 should be recognised as compliant with the future standard until their EPC expires or is replaced. We will have to wait until the outcomes of the consultations are known, but it will certainly be tempting for landlords to get new EPCs this year if they are already scoring a C or above on the current metrics.
  
  
• Onwards trajectory: Do these proposals suggest that the Government will mandate an EPC rating B or A, at some point in the future. For business certainty, landlords will need to understand the long-term MEES requirements in order to plan finances and also, on a practical level, to decide how best to carry out the necessary works. Landlords of commercial properties are also waiting for clarity as to whether the MEES regime will be updated for their sector.

For more, read our briefing for more information.

As we discussed in our last edition of Insights, the Leasehold and Freehold Reform Act 2024 (LFRA 2024) was one of the final pieces of legislation enacted by the previous government in July 2024 with the aim to substantially improve the rights of residential long leaseholders of houses and flats in England and Wales.

Two provisions of the LFRA 2024 are now in force:

• residential leaseholders no longer need to have owned their lease for two years before being able to instigate their rights to enfranchise or claim a lease extension (effective from 31 January 2025); and
  
  
• the statutory 'right to manage' is now available for residential leaseholders in mixed-use premises where the internal floor area used (or intended to be used) for commercial purposes does not exceed 50% of the building's total internal floor area (excluding common parts) (effective from 3 March 2025). This limit was previously 25%.

These are the first in the series of changes intended to be brought into force by the LFRA 2024. Watch this space for news of more in the coming months.

The Commonhold White Paper contains the Government's proposals for legislating that all new flats, subject to certain unspecified exemptions, will be offered for sale under the commonhold model instead of the current leasehold model.

What does the White Paper mean for business?

• Landlords of existing residential property: At present there is no change for landlords of existing residential buildings or their lenders, although they should be aware that the Government plans to focus on devising a better system for converting leasehold flats to commonhold flats than the mechanism in the current legislation. The White Paper indicates that the Government prefers the "mandatory leaseback" form of conversion outlined by the Law Commission, which would require the freeholder to take a leaseback and become the head-lessee in respect of flats whose owners did not consent to the conversion to commonhold. Their interest would sit between the CA and the leaseholder under a 999-year lease, under which they would receive any ground rent but would be unable to participate in decision-making because they would not be a unit owner. Landlords should therefore consider taking advice on what this could mean for them.
  
  
• Residential developers: developers of residential schemes will need to adapt to the new commonhold regime. The Law Commission's recommendations include suggestions that are intended to balance the unit-owners' rights to run their own buildings against the developer's need to have some control over the scheme while it builds out subsequent phases.
  
  
• Current leaseholders: will not be affected by the White Paper, although it stresses that the Government intends to streamline the current complex process for converting leasehold schemes to commonhold. There is therefore a danger, in the meantime, that a two-tier market may develop whereby flats in leasehold schemes could be devalued.
  
  
• Private rented sector: short-term let tenants, such as assured shorthold tenants, will not be affected by this change. Their landlords will not be affected either unless they are long leaseholders themselves (see above). The commonhold regime permits leases granted for less than 7 years without a premium being paid, so it will still be possible to sub-let a commonhold flat unless the CCS for a particular building says otherwise.

For a summary of the key provisions of the White Paper, read our briefing.

The Building Safety Act 2022 gives the Government the power to impose a building safety levy on all new residential buildings in England (Levy). The aim is to extract £3.4bn from residential developers over the next 10 years to fund the remediation of safety defects. Many had hoped that the Levy had drifted down the Government's priority list, trumped by an overriding manifesto promise to build 1.5 million homes by 2029. However, the Government recently confirmed that the Levy is still very much part of its plans, but that it will not come into force until Autumn 2026 (a year later than previously planned).

The Levy applies irrespective of whether the developers that will now be paying it were responsible for historic building safety failures. In doing so, the Levy upholds the Government's firm commitment that neither the taxpayer nor tenants should pay for the cost of historic safety defects. The Levy comes on top of the 2023 Developer's Pledge – where the Government forced 52 major developers to commit to self-remediating 'life critical' fire safety works in buildings over 11 metres that they played a role in developing or refurbishing over the last 30 years. Further, the Levy will be charged in addition to the Government's UK-wide residential property developer tax – a 4% tax on profits exceeding £25 million arising from residential property development. Caught in a whirlwind of additional taxes and requirements, planning and tenure reform, only time will tell the true impact of the Levy on the residential development sector.