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The Green Deal - what do you need to know?


The Green Deal, the government's initiative to enable property owners or occupiers to make energy efficiency improvements without having to pay the up-front cost of such improvements, has received a lot of press coverage. Green Deal plans can be agreed from 28 January 2013. What do property owners and occupiers need to know about the scheme?


How does it work?

  • The property is assessed by a Green Deal assessor, who recommends the improvements that could be made to make the property more energy efficient.
  • A Green Deal provider then determines the likely annual saving (which is calculated by reference to the likely saving that will be made in the first twelve months after the installation of the improvements) as a result of the recommended works.
  • The provider sets a period and level of repayment so that the cost of energy consumed (which should be less than without the improvement works) plus the repayments (the Green Deal charge) do not exceed the cost that would have been paid for the energy consumed had the works not been undertaken
  • Repayments are made as part of the energy bill by the energy bill payer. The bill payer may vary during the period of repayment if the property changes hands, and a landlord would be responsible for the Green Deal charge during any void period.

General

The Energy Act 2011 requires the Secretary of State to bring in regulations by April 2018, at the latest, making it unlawful to let a property with an EPC rating below a prescribed level (thought likely to be "E"). Properties with poor EPC ratings are likely to suffer from a "brown discount" as the deadline approaches, but it is thought that the value of energy inefficient properties will fall well before that.

Landlords

Landlords who want to take advantage of the Green Deal themselves need to consider:

Do they have the requisite access rights in leases that are already in place?

Will the tenants consent to the works?

Can they recover costs in relation to works to the common parts via the service charge?

In considering a request from a tenant who wants to enter into a Green Deal plan, landlords should consider:

Will it affect property value?

What if the tenant defaults on payments?

What about void periods?

Effect on rent review

Landlords of private rented domestic property should note that they will not be able to refuse consent to a tenant's request to make alterations for energy efficiency reasons after April 2016 (at the latest).

Tenants

Tenants taking a new lease should ensure that they carefully look at the EPC ratings of the property, and bear in mind that:

The regulations regarding the letting of property with a poor EPC rating will affect them should they wish to assign or underlet the property.

Lenders may require energy efficiency improvements to be carried out as a condition of providing finance.

If a tenant wants to carry out improvements using the Green Deal, landlord's consent is likely to be required under the lease. A consent procedure for Green Deal works is also set out in the regulations.

An improvement that will increase the energy efficiency of a tenant's demise may involve works outside the demise (e.g. cavity wall or roof insulation).

A landlord may want to enter into a Green Deal plan in relation to the common parts of a multi-let property. Tenants should check the lease provisions to see if they will be paying for this via the service charge.

Landlords are likely to start putting provisions in leases to cover the Green Deal (for example, making consent conditional on the term of the Green Deal plan being less than the term of the lease).

What should owners/landlords do now?

Undertake an energy efficiency audit now; do not wait until it is unlawful to let the property with a low EPC rating.

Improve energy inefficient properties or dispose of them now; the marketability of energy inefficient properties will be reduced well before 2018 (it is estimated that the disposal of poorly rated properties will reach its peak in 2015).

If you are acquiring new property, take note of the EPC rating. Lenders may start requiring borrowers to bring the property up to a more energy efficient standard before they lend (as the term of the loan will undoubtedly go beyond April 2018).

For further details about the operation of the Green Deal, and the property implications of it in a landlord/tenant context, please see the article prepared for PLC Environment (see Downloads). This article has been reproduced from PLC Environment with the permission of the publishers. For further information visit www.practicallaw.com or call 020 7202 1200.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at January 2013. Specific advice should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this publication.

TLT LLP is a limited liability partnership registered in England & Wales number OC 308658 whose registered office is at One Redcliff Street, Bristol BS1 6TP England. A list of members (all of whom are solicitors or lawyers) can be inspected by visiting the People section of this website. TLT LLP is authorised and regulated by the Solicitors Regulation Authority under number 406297.

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