The Energy Act 2011 implemented The Green Deal, a Government scheme aimed at improving the energy efficiency of domestic and commercial properties. The Green Deal was launched on 28 January 2013.
How does it work?
The Deal follows a number of stages. The first is assessment – where the property will be sized up for the most suitable energy-saving devices by an independent Green Deal Assessor. Then follows the installation stage, which requires some or all of the recommended measures to be implemented within a specified period. These will be carried out by an approved Green Deal provider, who will provide the funds up front and recover the cost via the energy bills of the occupier. The occupier therefore has no need to pay anything up front and, as long as the cost of the repayments do not exceed the savings made on the energy bill, should not suffer any financial detriment. This is the “Golden Rule” of the Green Deal – the rule that the cost of the improvements must not exceed the reduction in energy bills over the total loan period.
Sounds good - should I be concerned?
While the aim of the Golden Rule is to remove any financial disincentive, this relies heavily on accurate projections by the appointed Green Deal Assessor over a period where there may be many variables in energy use – such as change of use of the property, change of tenancy or change of the number of people in occupation. If the energy bill savings are lessened – for example by a general cut in the amount of energy used in the property – the Green Deal repayments may become burdensome.
In principle, though, the Golden Rule works very much in favour of the property owner or occupier, and the benefit of having no up-front costs is an attractive consideration.
Liability for the loan falls to the bill-payer, whether or not they were the one who took out a Green Deal plan. Therefore once a plan is in place any subsequent purchaser or tenant of the property will then be liable for the Green Deal repayments. Landlords must take note however that even when a property is empty the Green Deal repayments continue to run and will be the responsibility of the landlord.
By law a seller or landlord is obliged to disclose the existence of a Green Deal plan on a property to an incoming buyer or tenant. There have been concerns that this disclosure requirement could affect the marketability of the property, but it is worth sellers and landlords pointing out to any buyer or tenant that they will also get the benefit of enhanced savings on the energy bill. The freehold value of the property may also increase as energy efficiency improves.
Landlords with tenants in occupation who wish to make use of The Green Deal are also obliged to get the tenant’s permission before implementation. Similarly tenants wishing to adopt a Green Deal plan must request their landlord’s consent.
Mind your EPCs
Where a Green Deal plan has been taken out, the EPC for that property must state the key information of the plan. The government has stated that by 2018 they intend to introduce legislation to prohibit the renting of properties that have F or G-band EPC ratings.
Landlords should therefore consider carefully their EPC ratings – make sure they have the most up-to-date EPC certificates and look to see which properties need improving. Tenants who wish to assign or sub-let will also be affected and should therefore consider the EPC rating of any property before agreeing to pay the bills.
So will it be worth it?
Much depends on the accuracy of the initial assessment. If you are sure of a stable and consistent use of the property over the repayment term then the Golden Rule should operate to improve the property without any financial burden. It has been noted that the interest rates proposed so far have been high. The Green Deal must therefore be looked at in a wider financial context, and alternative funding for the same improvements may be the better and cheaper option. The Green Deal is an attractive proposition, but it is not without its limitations, and careful consideration of the Deal’s value to your property is essential.