The Green Deal
The Green Deal is a scheme, originally designed by the government, now backed by private investors, that enables landlords and tenants to make energy efficiency improvements to residential and commercial property funded through a ‘pay-as-you-save’ approach. Green Deal providers arrange low-cost finance for the improvements without having to pay any up-front costs. Instead, the costs of making the energy saving improvements are added to the energy bills at the property and paid off in installments by the energy bill payer in line with the Golden Rule. The Green Deal Golden Rule is that the expected financial savings resulting from the energy efficiency measures must be equal to or greater than the costs attached to the energy bill.
The Green Deal was introduced through the Energy Act 2011 (EnA 2011) and has been implemented through a series of regulations and orders, which provide details to the scheme, such as the Green Deal Framework Regulations (Disclosure, Acknowledgment, Redress etc) 2012 (GDFR 2012), SI 2012/2079, the Green Deal (Disclosure) Regulations 2012, SI 2012/1660 and the Green Deal (Acknowledgment) Regulations 2012, SI 2012/1661.
The scheme was launched on 28 January 2013 as part of an initiative to reduce carbon emissions through addressing the UK’s thermally inefficient housing stock. It was subsequently brought to an end in July 2015 when the former Secretary for Energy and Climate Change, Amber Rudd, announced the Green Deal Finance Company (GDFC) and the related home improvement fund would no longer receive funding, effectively ending the scheme. This was due to low take-up and concerns about industry standards.
On 16 January 2017, Greenstone Finance and Aurium Capital Markets announced its acquisition of the business and assets of the GDFC, as well as its existing loan book, with a principal value in excess of £40m. The acquisition was supported by Honeycomb Investment Trust. The new ownership continued to service existing Green Deal loans and made new loans available from May 2017. For more information on the acquisition, see: LNB News 16/01/2017 186 and News Analysis: The New Green Deal.
In October 2017, Department for Business, Energy and Industrial Strategy issued a call for evidence on the reform of the green deal framework as part of the government’s Clean Growth Strategy, which closed on 23 November 2017. The outcome and summary of responses were published on 27 July 2018. There were 107 responses to the call for evidence from a variety of types of organisations. Overall many saw scope for the scheme to play a useful role in the future, with some supporting the view that an improved Green Deal Framework could lead to increased activity and benefits. There was also considerable support for simplification, and taking account of wider industry changes such as Each Home Counts. The government has stated that it will publish a consultation at a later date on proposals to reform the Framework.
For more information on the Clean Growth Strategy, see News Analysis: Clean Growth Strategy—Environmental Headlines (October 2017).
For further information, see:
- Government ends Green Deal Finance Company funding, LNB News 24/07/2015 157
- DECC 'will lose' £25m Green Deal loan, LNB News 14/04/2016 106
- Green Deal 'not value for money', NAO finds, LNB News 14/04/2016 103
For more information on the Green Deal, see Practice Note: What is the Green Deal?
For more information on Green Deal issues in property transactions see checklist: Green Deal considerations in property transactions—checklist.
The government stated in its Green Finance Strategy, published in July 2019, that it will continue to explore further opportunities for simplification and improvement of the Green Deal framework to support funding of the energy efficiency measures.
What is the private rented sector?
The private rented sector includes domestic rentals and social housing and non-domestic properties, such as commercial lettings.
Disclosure of Green Deal
If there is a Green Deal on the property, this must generally be disclosed by the landlord to the prospective tenant at or before the time the property is viewed. The disclosure must be free of charge and is made through an Energy Performance Certificate (EPC), which will reveal what the Green Deal charge is. The Energy Performance of Buildings (England and Wales) Regulations 2012, SI 2012/3118, provide details on when the EPC should be made available. For further information, see: Energy performance certificates (EPCs)—what are they and when are they required?.
Green Deal Framework Regulations (Disclosure, Acknowledgment, Redress etc) 2012, SI 2012/2079, reg 44
There may be some situations where, because of the circumstances, disclosure will be required at a different time. This is most likely to be the case where the prospective tenant doesn’t view the property before making an offer. Where that is the case the Green Deal (Disclosure) Regulations 2012, SI 2012/1660, provide for different disclosure arrangements.
Green Deal (Disclosure) Regulations 2012, SI 2012/1660, reg 3
Disclosure isn’t necessary for the landlord in situations where confirmation of the Green Deal plan has already been obtained by the tenant (see consent and confirmation below).
Green Deal (Disclosure) Regulations 2012, SI 2012/1660, reg 6
Acknowledgment of Green Deal
The landlord will also have an obligation to obtain an acknowledgment from the tenant that they understand they will be paying the Green Deal installments.
The tenant must provide this acknowledgment using the prescribed wording, which depends on whether the Green Deal plan contains an early repayment term or not. If this isn’t done, any incoming tenant who wasn’t made aware of the Green Deal through disclosure and acknowledgement could, following investigation by the Green Deal Ombudsman and Investigation Service and the Secretary of State, have the Green Deal plan cancelled. If this happens, the landlord could be left to compensate the Green Deal provider.
Green Deal (Acknowledgment) Regulations 2012, SI 2012/1661
GDFR 2012, SI 2012/2079, Pt 8
Obtaining an acknowledgment from the tenant isn’t necessary in situations where confirmation has already been obtained from the tenant (see consent and confirmation below).
Green Deal (Acknowledgment) Regulations 2012, SI 2012/1661, reg 5
Consent and confirmation
Before a landlord or a tenant can make improvements under a Green Deal plan, they must ensure that they have obtained the requisite consents and made the correct notifications which include:
- planning permission and building control approval from the local authority
- where appropriate, confirmation from the ‘relevant first bill payer’ or the ‘relevant subsequent bill payer’ (eg the tenant, where the landlord is making the improvements) and any ‘owner’ (eg the landlord, where the tenant is making the improvements) of the property. Any confirmations that have been made will be attached to the Green Deal plan
GDFR 2012, SI 2012/2079, reg 36
- consents from lenders to make structural alterations to the property (depending on the terms of the mortgage and the improvement works)
- consents from the landlord to make alterations to the property, depending on the terms of the lease
- where appropriate, notifying the insurer of any improvements installed, to ensure the building’s insurance remains valid
Complaints can be made for failing to obtain the necessary consent, which following investigation could result in the Green Deal plan being cancelled and the improver paying compensation to the provider.
GDFR 2012, SI 2012/2079, reg 55
Updating the central charge database
Where a new party becomes responsible for the Green Deal charges, it is important that the Green Deal provider is provided with the identity of the new registrable leaseholder. This is so that they can update their central charge database and ensure that responsibility for payment of the electricity bill is determined appropriately.
Minimum energy efficiency standards
As of April 2018, all private rented properties (domestic and non-domestic) should have been brought up to a minimum energy efficiency standard rating, of EPC rating ‘E’. The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015, SI 2015/962 implement these minimum energy efficiency standards. These regulations also set out sanctions for non-compliance. See Practice Notes:
- Minimum energy efficiency standards (MEES) in the private rented sector—snapshot
- Minimum energy efficiency standards (MEES)—domestic tenants’ energy efficiency improvements
- Minimum energy efficiency standards (MEES)—prohibition on letting substandard domestic property
- Minimum energy efficiency standards (MEES)—non-domestic property within the scope of MEES
- Minimum energy efficiency standards (MEES)—non-domestic property—transactional issues
- Minimum energy efficiency standards (MEES)—non-domestic property—exemptions and PRS Exemptions Register
- Minimum energy efficiency standards (MEES)—non-domestic property—enforcement and penalties
- Minimum energy efficiency standards (MEES)—non-domestic landlords and tenants—impact on existing and new leases
For non-domestic properties the minimum energy efficiency requirements are subject to there being no upfront financial cost to landlords. This means that landlords can fulfil this requirement if they have either reached EPC rating 'E' or have carried out the maximum package of measures funded under the Green Deal and/or Energy Company Obligations (ECO), even if this does not take them up to an ‘E’ rating.
Under the Energy Efficiency (Private Rented Property) (England and Wales) (Amendment) Regulations 2019, SI 2019/595 landlords of domestic private rented properties need to not only oversee investment in energy efficiency improvements to properties with a substandard energy performance rating but, where necessary, need to self-fund such improvements subject to an upper spending cap of £3500. The regulations also remove the ability of domestic landlords to claim an exemption from SI 2015/962 on the grounds that confirmation for a green deal plan under GDFR 2012, SI 2012/2079, reg 36, could not be obtained from the tenant. The Regulations came into force on 1 April 2019.
Tenants should be aware that if their property is rated as being below the required energy efficiency level by 2018, they won’t be able to assign or sublet their leases.
Landlord to give consent to energy efficiency improvements
As of April 2016, domestic private rented landlords have not been able to unreasonably refuse a tenant’s request for consent to energy efficiency improvements where financial support is available through the Green Deal or ECO. The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015, SI 2015/962 provide details on this provision and how the request should be made. See Practice Notes: Minimum energy efficiency standards (MEES)—domestic tenants’ energy efficiency improvements and Minimum energy efficiency standards (MEES)—prohibition on letting substandard domestic property for more information.
Drafting considerations for leases
The following issues should be considered by landlords and tenants entering into a lease:
- landlords may wish to consider obliging tenants to ensure the energy efficiency of the property doesn’t drop below a certain level, given the 2018 minimum energy efficiency requirement
- landlords will be liable for Green Deal charges for any void periods between tenancies, even if for a short period such as a few days, and so landlords might want to consider provisions:
- preventing any Green Deal from exceeding the term of the lease so the landlord isn’t left having to pay the Green Deal charge in any void period and doesn’t risk having the marketing of their property hampered by the Green Deal charge
- obliging the tenant to pay off the Green Deal charge if the lease term expires through surrender or exercise of break clause—the bill payer will have the right to repay the Green Deal charges early if the Green Deal plan is regulated under the Consumer Credit Act. If the Green Deal plan isn’t a regulated credit agreement, then the early repayment terms will depend on the agreed terms of the plan
- requiring the tenant to pay a rent deposit to cover the Green Deal charge, although it should be noted that the landlord won’t become liable for any of the tenant’s Green Deal arrears should the tenant default
- where Green Deal improvements have been made to common parts, consider if the Green Deal charge for these improvements will be passed on to tenants through the service charge
- if the landlord envisages that Green Deal improvements will be made to common parts, then they might require a clause obliging tenants to consent to improvements to common parts
- if tenants want to make Green Deal improvements to the property they should ensure that the landlord won’t unreasonably withhold consent to these improvements
- if a tenant has had Green Deal work carried out, they should see that the improvements are disregarded on rent review in non-domestic rentals
- tenants may want to ensure that there aren’t any provisions requiring Green Deal improvements to be removed at the end of the term
- tenants should check the service charge provisions to see if the landlord is passing on the costs of any Green Deal works to the common area
See Practice Notes: Minimum energy efficiency standards (MEES)—non-domestic landlords and tenants—impact on existing and new leases and Minimum energy efficiency standards (MEES)—non-domestic property—transactional issues