Registered Providers (RPs) are to play a vital role in the Green Deal. Bill Hull, head of the Green Deal team at leading law firm, TLT, sets out some of the current legal issues that are key to RPs delivering the best outcome from the scheme for their residents and communities.
Steps to making the Green Deal a reality are advancing – the legal framework is to be in place by 1 October 2012 and the first payments are due to be made in January 2013. DECC acknowledges the unique role of social housing, stating that the "sector is well-placed to play a central role in delivering the Green Deal", citing the large natural market, good local engagement and experience in delivering energy efficiency improvements at scale, as amongst the reasons for this.
RPs may choose to establish themselves as Green Deal Providers, co-ordinating the delivery of the scheme, or they may work with partners to play a role. However they participate, it is important that they equip themselves with the skills, knowledge and advice to deal with the novel issues raised by the scheme, in order to make the most of the opportunities it presents.
1. The Procurement regime
An RP may have an existing available contractor framework for energy efficiency, whole house retrofit work in place. Could these frameworks be utilised to select a partner for delivering Green Deal solutions on a pilot or full basis? Whilst the public procurement regime states that variations to these existing agreements could amount to the award of a new contract, with the right procurement advice, RPs may well be able to use those existing frameworks rather than incurring the expense and delay of running a new tender exercise.
2. Warranties and maintenance
The government's response to the Green Deal consultation included a relaxation on the proposed requirements for lifetime warranties on every energy efficiency measure. Extended warranties will no longer be required alongside standard manufacturers' warranties. This was welcome as these requirements would have greatly increased the costs for certain measures. However, all products installed with Green Deal finance must deliver energy savings and comply with the Green Deal Code of Practice. In addition, the Green Deal provider must also provide an installation guarantee.
Under the installation guarantee, for most improvements the Green Deal provider must guarantee the functioning of an energy efficiency improvement for 5 years from installation and must repair, free of charge, consequential damage to property resulting from the installation for 10 years from installation. For solid wall and cavity wall insulation, the guarantee that the Green Deal provider must offer is 25 years, both in relation to the functioning of the improvement and consequential damage.
There is potentially an overlap between the existing obligations that RPs have for the state of repair of their housing stock and the obligations under the installation guarantee that will be imposed on Green Deal providers who will be upgrading the stock. An analysis of the overlap and varying responsibilities under an RP's arrangements with both its Green Deal provider and its maintenance contractor will be required to ensure that RPs do not find themselves paying for the same service twice.
The position in relation to the consents needed to enter into Green Deal arrangements will be an important issue for RPs. From the draft legislation it currently appears that certain tenants (in particular those with long leases with over 21 years left to run) can enter into Green Deal arrangements without their RP's consent. The result is that whilst shared ownership lessees will not need their RP's consent to enter into a Green Deal, assured tenants will. Regardless of the terms of the Green Deal legislation, however, consent from the landlord may be required under the terms of the house/flat lease. In the case of a flat lease which demises only the interior of the flat, for example, measures which impact on the structure of the exterior of the premises will not be permitted without consent. Ultimately, whether tenants will need to seek consent will depend on the package of measures that the tenant is proposing and the terms of their lease.
RPs will require the consent of the tenant in occupation of a property if it is proposing to fund energy efficiency improvements through the Green Deal and attach the relevant charge to the tenant's electricity bill. In order to avoid issues around obtaining consent, it has been suggested that RPs may wish to take advantage of void periods to enter into Green Deal arrangements. In relation to flats, according to DECC, an RP will not need a tenant's consent to enter into Green Deal arrangements in relation to Common Parts for which they are the electricity bill payer. Whether this can be charged back to tenants will depend upon the terms of the lease.
In any scenario it will be necessary to consider the terms of the Green Deal legislation and the terms of the lease to assess the Green Deal consent requirements. RPs may be advised to amend the terms of their standard leases to clarify consent issues and ensure that Green Deal charges are recoverable through service charges.
4. ECO uncertainty
The Energy Company Obligation (ECO) is to replace CESP and CERT. RPs are to play a key role in the delivery of the ECO but whilst RPs can access funds allocated to the Carbon Saving and Carbon Saving Communities elements of ECO, they will not be able to access the Affordable Warmth funds for their own housing. Depending, to a degree, on how energy suppliers wish to deliver ECO, there may be scope to access ECO through Green Deal providers, through a sub-contractor, through direct arrangements with obligated energy suppliers (as has been done under CERT and CESP), or through the proposed ECO "brokerage" system. Details of the brokerage system are not yet known but DECC is to hold a further consultation on its operation and the volume of ECO funds to be applied through this mechanism.
An important question for RPs acting as Green Deal providers will be how to finance the up front cost of the Green Deal improvements. Recent developments have given an indication of how the funding gap might be closed and how the Green Deal Finance Company (GDFC) will be able to offer low cost finance in early 2013. Earlier this month DECC committed to make a £7 million loan to the GDFC and the Green Deal scheme is also being considered as an early candidate for the new system of UK guarantees.
The details of this system are not yet known but the government has stated that it is "looking at whether and how a guarantee could help ensure that the finances are in place to get the programme off to a very strong start". The idea behind the UK guarantees is that the government will put its fiscal credibility behind major infrastructure projects to support investment. The recent developments are encouraging in demonstrating a commitment to providing low cost sustainable finance, a factor which will be key to the success of the Green Deal.