It allows some or all of the costs of the improvements to be spread over time through 'additions' to the property's electricity bill, although bills should not go up as repayments are designed to be no more than typical saving in energy costs; this is known as the 'golden rule'.
Why is this important for owners of let properties?
The Energy Act 2011 introduced a series of energy efficiency targets, including that residential and commercial let properties must have an Energy Performance Certificate (EPC) above a minimum energy efficiency standard (E or better) from 2018. Therefore, properties with an energy rating of F or G will not be able to be let after this date in England and Wales. In Scotland the deadline is 2015. The interest rate for Green Deal financing is expected to be around 7% so there may be other ways of doing the same thing at lower interest rates.
The Green Deal provides a means for a landlord to address these new regulations and presents opportunities for low-cost energy assessments and reduced capital costs for the installation of the necessary measures.
Tenants can apply for the Green Deal
Tenants wishing to use the Green Deal to help pay for energy related improvements will need to approach the landlord to get the landlord's written permission, which cannot be unreasonably withheld after 2016. Both parties will need to agree the improvements and the financial aspects, such as the amount and length of the repayments, which could be as much as 20 years.
Who pays for the work?
The electricity bill payer pays the Green Deal repayments but the loan is fixed to the property and not to an individual. If the property is vacant the owner will need to make the repayments until a new tenant moves in and starts paying the electricity bill.
The Green Deal process:
1) Assessing the property
The landlord or the tenant books a Green Deal assessment with an authorised assessor. You may be asked if there are any accessibility issues like access to your loft and whether you can provide bills showing energy use. Some Green Deal Assessors will charge for their service. Green Deal assessors will detail recommendations in a Green Deal Advice Report, drawing from a list of 45 options.
2) Agreeing work and obtaining permissions
After receiving the Green Deal Advice Report, which will include advice on whether planning permissions are needed, quotes for the proposed work should be obtained, ideally from at least three approved Green
Deal Providers. Green Deal Providers will arrange the financing and co-ordinate on behalf of approved installers and set out the proposed measures and the payment terms in a Green Deal Plan. This Plan will need to be agreed by both the landlord and tenant. To proceed with the work landlords will need the tenant's written permission.
3) Installations
Once the Green Deal Plan has been agreed, the Provider will arrange for the improvements to be made to the property by an approved Green Deal Installer.
4) "Pay as you Save"
The tenants will pay for the agreed proportion of the install costs through their electricity bill over the agreed loan period.
Will the Green Deal affect new tenants?
When renting out a property with a Green Deal, in addition to providing the standard Energy Performance Certificate (EPC), letting agents must provide information on the:
-improvements that have been made under the Green Deal;
-repayment amounts the electricity bill payer needs to make;
-length of the Green Deal;
-name of the Green Deal Provider.
The letting agent must make sure that the tenant confirms acceptance of the Green Deal terms.
How can landlords assess their estates/property portfolios?
All owners of residential and commercial property that will be let after 2018 should consider using the following approach:
Relevant Property List.
Determine which buildings require an EPC. They must have a roof, walls and use energy to condition the indoor climate. Therefore most farm buildings will not need one but pack houses or office conversions will. Listed Buildings can be removed from the list as they are excluded. Properties on long-term lettings could be moved to a separate list as the requirement only applies when a property is re-let or sold.
Energy Baseline. Determine which properties are rated F or G.
Capital Costs. Determine how much it will cost to reach an E rating or above.
Green Deal Capital Off-setting. Determine the proportion of installation costs the Green Deal can offset and determine, possibly after discussion with the tenants, whether the project should be financed through the Green Deal or in another way.
When should I take action?
Now is a good time, as:
(i) it gives you the most time to get your property up to an E rating or higher.
(ii) other subsidies, such as Feed In Tariffs and the Renewable Heat Incentive, are likely to decrease.
How can I do it?
You can work through the above actions yourself or employ someone to do it. Smiths Gore's building surveyors and sustainability advisers are available to assist and will be able to provide you with an assessment of the costs of reaching E or better and, if required, supervise contractors so the work is done to a good standard.
