Green Deal is Coming

Legislation should be in place by the end of the year to allow landlords to benefit from the Green Deal.

How will it impact on landlords?
The Green Deal is the much vaunted initiative to improve the energy efficiency in the UK’s housing stock. As regards landlords it is all about incentivising us into investing in the energy efficiency of their properties.

Chris Grant of EPC Choice goes on to explain how it is intended to work and the increasing importance of EPCs in the process:
"Landlords have largely been “put off” undertaking works to improve the energy efficiency of their investment properties as the return on such investments is often not sufficiently tangible to translate into higher rents. Essentially it is the landlord who pays and the tenant who benefits by way of lower gas and electricity bills."

“Split Incentive”

The Green Deal seeks to address what has become known as the “split incentive” by allowing landlords to make energy efficiency improvements without having to pay for them upfront. The cost of these works will be financed by a financial institution such as the Green Deal Finance Company*. This finance will be a loan secured against the landlords property with existence of the loan being documented at the Land Registry. The new revised EPC will also record the presence of Green Deal finance of a particular property.

“Green Deal Loan”

The repayment of the “Green Deal loan” will be made from the savings generated on the energy bills of the person paying the bills. For the majority of investment properties this will be the tenant. However during voids the responsibility will revert back to the landlord. (as is the case for now for utility bills)

“Golden Rule Principle”

To protect tenants (and all householders) their will be a “Golden Rule Principle” which aims to keep the energy bills at the property no higher than they would have been had the property been without a Green Deal – this is important both to protect consumers from higher energy bills, and to protect investors from a higher risk of default on the bill.

Legal obligation of the landlord

As the tenant will be responsible for effectively paying the Green Deal finance, the landlord will have a legal obligation to advise the tenant that Green Deal finance is in place. The Golden rule described above will protect tenants from paying higher energy bills if they rent a property with Green Deal finance as opposed to one without. In theory this should not mean that Green Deal properties will not be any less desirable to tenants. Landlords who have commissioned the new style EPC which identifies the presence of Green Deal finance will comply with this disclosure requirement by providing prospective tenants with a copy of the EPC

This company will be one of a number of companies providing the finance for landlords to take up the Green Deal. The GDFC is a consortium including British Gas, Carillion, Clifford Chance, E.ON, EDF Energy, Goldman Sachs, HSBC, Insta Group, Kingfisher, Linklaters, Lloyds Bank Corporate Markets, Mark Group, npower, PwC, RBC Capital Markets and SSE.

My views

I’m all in favour of making properties more energy efficient and share a desire to improve my properties and the lives of my tenants like the majority of landlords. One factor that most legislators conveniently ignore in all their proposals is TIME! They never factor in the management time that it takes to co-ordinate further building work or upgrades. Most landlords have very limited time to manage additional retro fitting of improvement works. I see this as a significant stumbling block in any proposals; so for the legislation to work it needs to be simple. I suspect it wont be! There is always talk within the world of Energy Performance Certificates that the Autumn deadline for the Green Deal is unlikely to be met because of technical difficulties. Landlords need to keep a watching brief on this one but the good news is that no element of compulsion is proposed until 2016 giving us plenty of time to consider the details of the regulation before having to act.

If you have a view please email us your comments.

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