Green Deal - a good deal for landlords?

The government’s energy strategy has been back in the headlines in recent weeks. The so-called Green Deal, an important part of the government’s energy plans, has attracted both support and criticism – and it has important implications for landlords.

Last week, it was announced that rental properties will be required to meet certain energy efficiency standards. Some landlords are understandably concerned about this – but what does the Green Deal actually mean for you?

What is the Green Deal?

The ‘Green Deal’ is an element of the Energy Bill, presented by the government to Parliament last December. It is a central plank of the government’s green agenda, and is intended to make properties in the UK more energy efficient.

Energy efficiency is a major issue. Heating in residential properties is responsible for around a quarter of all the UK’s carbon emissions, and improving energy efficiency in the home is therefore important if the country is to meet its carbon targets.

Additionally, though, energy costs have risen significantly – and the Bank of England expects further rises in the coming months. Increasing the energy efficiency of residential properties, and cutting household bills as a result, is therefore beneficial for everyone.

The government says that the Green Deal will provide landlords and householders with a simple way of improving the energy efficiency of their homes – with no up-front cost.

What do I have to do?

The Green Deal provisions that will impact on landlords most directly can be split into two sections: property improvements, and minimum energy efficiency levels.

There has been some concern amongst landlords about the Green Deal’s proposed minimum levels of energy efficiency. It is now expected that, from 2018, it will be illegal for landlords to let property that does not achieve at least an ‘E’ rating on the energy efficiency ratings scale. It is thought that this ban will affect some 682,000 properties – and landlords will be forced to take action if they want their properties to remain on the market.

But it is the home improvement element that has grabbed the headlines. Under the Green Deal, loans will be available to landlords who want to improve the energy efficiency of their properties – with these loans being paid off alongside utility bills.

There are a few things to note here. First of all, landlords should theoretically not incur any costs as a result of improvements made under the Green Deal. This is because the loan repayments will be bundled into the utility bills – not paid separately. The repayments will therefore be made by the future tenants. Importantly, though, improvements will only qualify for Green Deal loans if it can be shown that the expected savings on energy bills will be at least equal to the cost of the improvements. So, at worst the tenant should see no change to their utility bills as a result of the improvements – and at best they should see their bills cut.

Loans will be available up to £10,000, and they will be repaid over a maximum of 25 years. Crucially, the loans will be linked to the utility meters, not to an individual – meaning that they will simply be ‘passed on’ if you sell the property.

Landlords will have to get the “express consent” of whoever it is that is currently paying the utility bills before improvements can take place. The landlord will also have a responsibility to explain the presence of Green Deal improvements to any future tenants.

What happens next?

While landlord groups have broadly welcomed the Green Deal, there are lingering concerns – particularly over the way in which it will be funded. A number of consumer banks have expressed an interest in backing the schemes, but the government is yet to explain exactly where the money is going to come from.

Despite this, the government has said that it expects the first Green Deal improvements to take place in autumn 2012, provided that secondary legislation receives Parliament’s approval.