On 11 June 2012, the Government published its response to the Green Deal consultation that it launched in November 2011. Whilst the legal framework came into force on 1 October 2012, the Green Deal is intended to go live in practice at the end of this year. Assessors, installers and Green Deal Providers should be ready to start work now or very soon, and the first Green Deal plans could be signed in January 2013.

The Green Deal is a vehicle for funding improvements to the energy efficiency of buildings. Accredited assessors will advise on the sorts of improvements that could be carried out and put together a funding package. The improvements will then be carried out by accredited installers and paid for by an approved Green Deal Provider, who will recover the costs, plus financing charges, through the property’s electricity bills. The Government’s “Golden Rule” dictates that the payments by the bill payer must not exceed the savings that an average energy user would expect the improvements to generate. For instance, if the average saving would be £50 per quarter, the quarterly payments must not exceed £50. Green Deal plans will last for a certain period of time and will attach to an electricity meter so, if the bill payer changes, the new bill payer will become responsible for making the payments going forward, unless the Green Deal plan has not been disclosed properly.

This could be relatively straightforward in the context of most residential property, but the Green Deal is also intended to apply to commercial property and, as has been seen with recent “green” legislation (such as EPCs and the CRC), applying a “one size fits all” policy to commercial property can have unforeseen complexities. Thankfully, rather than pressing ahead regardless, the government appears to be taking heed of this. Its response to the consultation states that the government is “currently developing [its] policy on the non-domestic Green Deal and will be looking closely at all the issues raised. As part of this process there will be continued research and identification of the nondomestic sectors most interested in, and suitable for, energy efficiency improvements.” The government will also look “at how to help address any attitudinal, awareness and motivational barriers in the commercial sectors.”

It is right for the government to think this through carefully. A number of issues arise in the commercial sector that are of less concern in the residential sector. For instance, with the average length of new leases now less than five years, and leases for longer often having tenant’s breaks in them, it is likely that (to meet the Golden Rule) any Green Deal plan will be for a period longer than the tenant might remain in occupation. If the tenant vacates and leaves the landlord with a void, the landlord will have to make the Green Deal payments, even if no actual energy efficiency benefits are achieved as the property is unoccupied. Similarly, if a tenant becomes insolvent and disclaims or surrenders its lease, not only does the landlord lose its income but it also has to make the Green Deal payments until it can relet. It is not clear if Green Deal plans will allow for full voluntary early repayments but, if not, then landlords might decide that the simplest solution is a blanket prohibition on their tenants entering into Green Deal plans. If this were to happen it would limit take-up, which could be a significant set-back to the government’s policy objectives. Typically, those premises that are most in need of the sorts of improvements that the Green Deal is meant to deliver may not get them.

Another potential hurdle is the drafting of new and existing commercial leases. Many will prevent the tenant from carrying out the sorts of improvements that the Green Deal will fund, such as installing new insulation or glazing and replacing a boiler or other plant and equipment. A landlord may therefore be absolutely entitled to withold its consent to the works, regardless of the risk of it becoming liable for the payments. Alternatively, if the landlord wishes to procure the works and enter into a Green Deal plan to fund them, it may find that the drafting of its leases prevents it from including the Green Deal payments in its service charge, because the works constitute “improvements” for which the tenants will not pay, even though it is the tenants who will benefit from them through reduced utilities bills. This is less likely to be the case with residential property, where the occupier will nearly always be the bill payer. It is also possible that some landlords will include drafting in new leases expressly preventing tenants from entering into Green Deal plans, for the reasons outlined above. Alternatively, some may view this as another Green Lease clause and propose wording for consultation and proper consideration of any Green Deal “opportunities”.

The government does not intend to introduce legislation that retrospectively imposes on landlords an obligation to consent to Green Deal measures, and on tenants an obligation to pay for them. This must be correct in a liberal democracy, but may result in the Green Deal failing to gain traction. Another factor that landlords and tenants need to consider is whether commercial lending might offer more attractive terms than a Green Deal plan.

For commercial premises at least, then, as things stand either the landlord or the tenant may well say “No Green deal.”