Cost Cap and Exemptions: Complete Guide for Landlords
The £3,500 cap that applies today, the £10,000 cap proposed for 2030, how to work out whether you qualify, and the risks of building a plan on exemptions.
The MEES regulations include exemptions for landlords who cannot reach the minimum rating despite reasonable effort. The most used of these is the cost cap exemption. The cap in force today is £3,500 including VAT, against the band E minimum.
Government has proposed raising the cap to £10,000, or 10% of the property value where that is below £100,000, alongside the band C standard. Government must first take new powers through an Act of Parliament, then lay a statutory instrument amending the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015. The target is for the new rules to be in force during 2027. Until then, £3,500 is the number that counts.
Either way, an exemption is not a simple escape route. You have to spend up to the cap on qualifying improvements first, keep the evidence, and re-register when it expires. This guide covers how the cap works and which grounds are open to you.
Understanding the cost cap: £3,500 today, £10,000 proposed
The cost cap exists to protect landlords from disproportionate expense. If reaching the minimum band would cost more than the cap, you can register an exemption after making improvements up to that value. Exemption is a last resort, not a first option.
What the Cost Cap IS
- A threshold for exemption eligibility
- The maximum you must spend before claiming exemption
- Inclusive of VAT on improvement costs
- Applied per property, not per landlord
What the Cost Cap is NOT
- A limit on how much you can or should spend
- An automatic exemption without evidence
- A way to avoid all improvements
- Inclusive of EPC assessment costs (only improvements count)
What Counts Towards the Cap?
Not all expenses count towards the cap, whichever figure applies. Knowing what is included matters for an accurate calculation and a valid exemption claim.
Counts Towards Cap
- Cost of energy efficiency improvements (materials and labour)
- VAT on improvement works
- Installation costs for qualifying measures
- Scaffolding if required for improvement installation
- Making good after improvement works
- Reasonable EPC assessment fees, at a level government has said it will define
- Part of the cost of specialised retrofit advice
Does NOT Count Towards Cap
- Letting agent and management fees
- Gas safety checks and other separate legal obligations
- General repairs or maintenance
- Decorative works
- Works not recommended on EPC or by qualified assessor
Worked example, under the proposed rules
This example models the proposed regime: a band C target and a £10,000 cap. It is here because it is the planning case most landlords want to see. Under the rules in force, the same property at band E is already compliant and the cap that would apply is £3,500.
Consider a Victorian terrace currently rated E (score 48). The EPC recommends these improvements:
| Improvement | Estimated Cost | EPC Points | Running Total |
|---|---|---|---|
| Loft insulation (top-up to 270mm) | £450 | +4 | £450 |
| Cavity wall insulation | £1,200 | +8 | £1,650 |
| New condensing boiler | £3,500 | +6 | £5,150 |
| Double glazing (single to double) | £6,500 | +5 | £11,650 |
| Total | £11,650 | +23 | - |
Result: Total improvements would cost £11,650 and raise the score from 48 to 71 (C rating). Since the first three improvements (£5,150) only raise the score to 66 (D rating), and the fourth improvement (£6,500) exceeds the remaining £4,850 of the cap, this landlord could:
- Complete the first three improvements for £5,150
- Attempt partial glazing improvements within the remaining £4,850 budget
- If still below band C after spending £10,000, register a cost cap exemption under the proposed rules
Types of Exemptions
There are several exemption categories under MEES regulations. Each has specific requirements and evidence needed for registration. All exemptions must be registered on the PRS Exemptions Register before letting the property.
Cost Cap Exemption
Available when spending up to £3,500 on qualifying improvements still would not reach the minimum band. The most commonly used ground. Under the proposals the threshold would be £10,000.
Requirements:
- Evidence that improvements have been made up to the cap value
- Invoices and receipts for improvement works
- Updated EPC showing rating after improvements (if improvements made)
- OR three quotes demonstrating cheapest pathway exceeds cap
Third Party Consent Exemption
Available when a required third party refuses consent for necessary improvements. This typically applies to leasehold properties or properties in conservation areas.
Third Parties Include:
- Freeholder or superior landlord (for leasehold properties)
- Planning authority (conservation area, listed building consent)
- Mortgage lender (if consent required in mortgage terms)
- Tenant (if their consent is legally required for access)
Evidence Required:
- Written request for consent sent to third party
- Written refusal or evidence of no response after reasonable time
Devaluation Exemption
Available when a qualifying surveyor provides written opinion that the required improvements would reduce the market value of the property by more than 5%.
Requirements:
- Written valuation from RICS-qualified surveyor
- Surveyor must assess value before and after proposed improvements
- Devaluation must exceed 5% of current market value
Wall Insulation Exemption
Available when wall insulation is the only recommended improvement but installing it would have a negative impact on the property. This exemption applies specifically to solid wall, cavity wall, or external wall insulation.
Qualifying Conditions:
- Wall insulation would cause damage to the structure or fabric
- Property has existing moisture or damp issues that would worsen
- Wall type is unsuitable for available insulation methods
Evidence Required:
- Written report from a suitably qualified expert
- Expert must be a member of a relevant professional body
New Landlord Exemption
A temporary exemption for landlords who have recently become landlords of a non-compliant property, allowing time to make improvements.
Situations Covered:
- Property acquired with existing tenant in place
- Property inherited or received as gift with existing tenancy
- Tenancy becomes qualifying through change in circumstances
How to Register an Exemption
All exemptions must be registered on the PRS Exemptions Register before the property can be legally let. Registration is an online process but requires supporting evidence.
Gather Evidence
Collect all documentation supporting your exemption claim: invoices, quotes, expert reports, correspondence with third parties, and before/after EPCs as applicable.
Access the Register
Visit the PRS Exemptions Register website and create an account or log in.
Go to PRS Exemptions RegisterComplete the Form
Provide property details, select exemption type, and upload supporting evidence. You will need: property address, current EPC reference number, exemption category, and evidence documents.
Submit and Confirm
Submit your application. Once registered, the exemption is valid from the registration date. You will receive confirmation which you should keep for your records.
Set Renewal Reminder
An exemption you register today lasts 5 years, except the new landlord ground, which is 6 months. Government has proposed 10 years for three grounds: cost cap, property value adjustment and negative impacts. Set a reminder to reassess and re-register before expiry, because the requirements may have moved by then.
Risks of Relying on Exemptions
While exemptions provide a legitimate pathway for properties that cannot achieve compliance, relying on them carries significant risks that landlords should consider carefully.
Public Visibility
The PRS Exemptions Register is public. Prospective tenants, letting agents, and others can see that your property has an exemption registered. This may affect tenant interest and perceived property quality.
Sale Complications
Your exemption does not go with the property. Government guidance is that exemptions on the register “may not pass over to a new owner or landlord of a property upon sale, or other transfer”, so a buyer who wants to let it has to register their own on their own evidence. Non-compliant properties may also be harder to sell, and lenders may be reluctant to mortgage non-compliant buy-to-let properties.
Future Regulatory Risk
Regulations may tighten. The cost cap may increase. Exemption categories may narrow. What qualifies for exemption today may not qualify when you need to renew. Energy efficiency requirements have consistently increased over time.
Tenant Expectations
Tenants increasingly expect energy-efficient homes with lower running costs. Poor energy efficiency may lead to higher turnover, void periods, or difficulty attracting quality tenants.
Assess Your Options
Use our calculator to estimate improvement costs and see whether compliance or exemption is the right path for your property.
Related Guides
EPC C 2030 Deadline
Full details on the October 2030 deadline and what it means for your properties.
MEES Regulations Guide
Comprehensive guide to Minimum Energy Efficiency Standards and how they apply.