The Green Deal comes into force next month. It presents Registered Providers with the opportunity to improve the energy efficiency of their housing stock with the possibility of tapping into subsidised funding from energy companies.
Its advent however will also see new obligations coming into force (and potentially severe penalties), with associated liabilities for non-compliance. Registered Providers should be aware of this and ensure their standard documentation and internal procedures take account of the changes.
The Green Deal is the Coalition Government’s initiative for improving the energy efficiency of UK properties. Its legislative framework is contained in the Energy Act 2011 (the EA), which received Royal Assent in October 2011. The overall aim of the EA is to establish a legal framework whereby both individuals and businesses can make energy efficiency improvements to their buildings with no upfront cost - the improvements being funded through a charge in future energy bills which are tied to the property.
At the heart of the Green Deal is the protection of the consumer and reduction of carbon emissions. This is enshrined in the Green Deal through the Golden Rule.
The Golden Rule and ECOs
The Golden Rule requires that:
'…the anticipated reduction in the cost of energy as a result of the proposed efficiency improvements has to be greater than the amount of the supplement added to the electricity bill.'
Where the Golden Rule does not work but strong policy reasons exist to promote energy efficiency measures, for example, to help the needs of persons with lower incomes and the most vulnerable, the new Energy Company Obligation (ECO) may also apply. Energy companies will be obliged to put a certain amount of money into ECOs for financing such measures.
Key stages: assessment, finance and installation
There are three stages in the operation of a Green Deal plan from initial assessment to its implementation.
Initially, a Green Deal assessment is carried out by an authorised assessor (the Green Deal Assessor) who has met the prescribed training and qualification standards. The Green Deal Assessor carries out an assessment of the fabric of the building to see how energy efficiency can be improved as well as a so-called ‘occupancy assessment’ which looks at how the owner uses the property and whether predictions of energy use made in the existing Energy Performance Certificate (EPC) reflect the actual use.
The owner/occupier can then go to a 'Green Deal Provider' to obtain a quote for the finance and installation of one or more of the recommended measures. The Green Deal Provider must be authorised by the Secretary of State and licensed under the Consumer Credit Act (CCA) 1974 to provide Green Deal finance under regulated consumer credit agreements.
The Green Deal Provider will be the first point of contact for the consumer once the Green Deal plan is complete and therefore will deal with any issues that may arise. The terms of the financial agreement for the finance must contain terms to protect the consumer, such as warranties in respect of the improvements. Prior to the installation, relevant consents will also need to be obtained (see 'Consents' section below) for the improvements and the charge to be added to the electricity bill.
This is carried out by an authorised 'Green Deal Installer' and the products installed must meet the relevant standards in the Green Deal Code of Practice.
Once complete, the Green Deal Provider gives the consumer a Green Deal plan document and a new EPC.
If there is a change in the ownership or occupation of a property, ie a change of 'bill payer', certain consents will be required to ensure that future occupiers understand the responsibilities that attach to the bill payer at the property. Consent will usually be required from the bill payer and the owner of the property on the following:
- the amount of the payments to be made under the plan
- the intervals at which they are payable; and
- the period for which they are payable.
In the case of rental properties, consent requirements for improvements and associated charges should be set out in the relevant tenancy agreement. Usually the consent of both the landlord and the tenant will be necessary. If an agreement for lease has been entered into, the future tenant will have to give their consent to the improvements/charge. Other third party consents may also be necessary, such as planning permission, listed building consent or freeholder consent depending on the works required.
Green Deal Providers are responsible for raising the issue of consents early in the process with the consumers and ensuring the correct ones are obtained.
Disclosure and acknowledgement
The scheme imposes obligations on sellers and landlords to disclose information about the Green Deal at their property to a potential future bill payer, usually via the EPC. Once a property changes hands, purchasers and tenants will need to provide an acknowledgement in writing accepting liabilities for making Green Deal payments and being bound by the terms in the Green Deal plan. The acknowledgement will usually form part of the contract for sale or tenancy agreement. And it would be sensible to update all relevant standard documentation to include such an acknowledgement.
Redress and sanctions
In the case of any breach of the consent, disclosure and acknowledgement provisions, the consumer will usually complain to the Green Deal Provider, who must then follow the correct complaint handling procedures in accordance with the Green Deal Code of Practice. A complaint about the Green Deal Provider should be referred to the Ombudsman). The provider will then pass the complaint to the Secretary of State who may require the provider to cancel the liability of the bill payer to make payments and notify them of the refund as well as requiring the person in breach to pay compensation to the provider. The Secretary of State can also impose other sanctions, including a financial penalty of £50,000 per breach and pursuing a party for fraudulent behaviour should they deliberately conceal a property’s Green Deal plan to a prospective buyer/tenant.
If disclosure is disputed and the sale or grant of a new lease has completed, the new bill payer has 90 days after receiving their first electricity bill to seek redress.
Impact on Registered Providers
It is anticipated that Registered Providers will play a pivotal role in bringing about the aims of the Green Deal due to their significant portfolios of housing stock, their experience of carrying out home improvements and their widespread tenant base.
In addition to using the Green Deal to improve the energy efficiency in their housing stock, Registered Providers may consider becoming Green Deal Providers themselves (if this is permitted within the organisations articles).
As is the case with other domestic landlords, Registered Providers will pay the Green Deal payments during void periods because the landlord becomes the energy bill payer but will not be liable to the relevant energy supplier for unpaid payments by a particular tenant as those will be treated as a debt in the usual way.
One stumbling block in the affordable housing sector may be overcoming Green Deal consent barriers, if housing stock is largely made up of flats. It may not be possible for all tenants to consent to the Green Deal on the freehold estate, but this is something we can assist you with.
However, as the sector manages significant numbers of properties and thus offers economies of scale, Registered Providers will be well placed to attract ECO funding and be able to improve their stock.
Although the true impact of the Green Deal will not be apparent for some years, Registered Providers will need to understand how the EA operates and the obligations imposed on them when selling or letting out a property.
They must pay particular attention to the disclosure and acknowledgement provisions as the sanctions for non-compliance are severe.
The Green Deal, if approached correctly however, can be an opportunity to upgrade the energy efficiency of housing stock in a manner which will not negatively impact cash flow of organisations and which may also be significantly subsidised through ECO funding.