Guest Blog: Government backs property owners

This is a guest blog from Dean Caldon, Managing Director of Redstones Brentwood.For more information call 01277 230300 or the dedicated public helpline on 0300 123 1234.

What is the Green Deal?

This coming October the UK Government are planning to introduce a scheme aimed at encouraging homeowners and businesses to improve the energy efficiency of their properties and buildings. This has been aptly named The Green Deal Scheme.

Why is the government doing this?

According to the Department of Energy and Climate Change (DECC), an ever increasing number of homes and businesses are experiencing rising costs of utilities such as gas and electricity and are currently using a lot more than is needed, in other words our properties are energy inefficient. Millions of homes across the UK do not have double-glazing and over 50% do not have sufficient insulation or an efficient condensing boiler. The DECC claim that overall our inefficient buildings account for 43% of the UK’s total greenhouse gas emissions.

What is the aim of the scheme?

The aim of the Green Deal Scheme is to make it possible for millions of homes and businesses to enjoy energy efficient improvements at little or no upfront cost to the home or business owner.

What types of improvements will be permitted?

At this moment in time, the full list is still to be finalised, but some of the proposed energy efficient improvements to be permitted are:

Loft insulation, cavity wall insulation, solid wall insulation, floor insulation, draught proofing, energy efficient glazing and doors, condensing boilers, electric storage heaters, solar heat panels, photovoltaic PV panels and ground source heat pumps.

How much is the UK Government contributing?

It is understood, that the government will contribute in the region of £205m to get the Green Deal Scheme up and running.

How will it work in practice?

There will be little or no upfront cost to the homeowner or business. Payment for the home improvements will initially be made by the Green Deal Providers (which are likely to be a variety of private firms, utility companies, local councils and charities). The Green Deal Providers will then recoup their outlay via installment charges made on the home or business’s electricity bill over a maximum 25 year term.

The Green Deal Scheme will not be means tested and it is believed that even if a person or business has a poor credit history, they will still be eligible for a Green Deal assessment as the debt will be attached to the property’s electricity bill and not to the owner or the actual property itself. The charge will remain on the property’s electricity bill and will not move or change hands even if the property is sold.

How much finance will be available per property?

The Green Deal Scheme allows Green Deal Providers to offer finance for energy efficiency improvements up to a value of c£10,000 per property.

Let’s say for example, that under the conditions of the scheme, an assessment was carried out and a homeowner had loft insulation installed and a replacement boiler. All things being equal, the property’s energy bills should decrease as a result of the improvements and the savings that are made will then be used to pay back the Green Deal Finance over a maximum term of 25 years, up to the value of the initial improvement works.

What are the conditions of eligibility for the Green Deal Scheme?

In order to be eligible to improve the energy efficiency of a property, the “Golden Rule” must first be met:

– The expected savings must be greater than the cost of works being done

This means, for example, that energy efficiency improvements worth £10,000 would not be permitted if, over the course of the 25 year term, the total savings were estimated to be only £8000. The overall savings must therefore exceed the actual cost of the works being done.

How will this affect the Private Rented Sector (PRS) and landlords?

Providing the Golden Rule is met, landlords could be eligible to make energy efficiency improvements without having to pay any upfront costs and it will be the tenants who will repay the cost through their energy bill.

Isn’t this disadvantageous to tenants?

No, the idea is, that the tenant will be in no worse financial position and will also benefit from a more energy efficient home. For example, imagine if the energy bill in any given property before improvements was £100 per month and subsequently after the proposed energy improvements, the energy bill was estimated to be £80 per month, then the estimated saving is £20 per month. This estimated saving then becomes the payment charge for the Green Deal Scheme, taking the energy bill total payment back up to £100 per month. If the cost of the improvement works proposed was £2400, then it would take 10 years for the finance to be repaid (£20pcm Green Deal charge x 12m = £240pa. Cost £2400/£240pa = 10 years).

Will there be any future regulation to the PRS regarding energy efficiency?

Yes, with the introduction of last year’s Energy Act 2011, the Government has made provisions to regulate and ensure the take up of cost effective energy efficiency improvements.

The provisions are that from April 2016, private residential landlords will be unable to refuse a tenant’s ‘reasonable’ request for consent to improve the energy efficiency within the property, where financial support is available, such as the Green Deal and/or the Energy Company Obligation (ECO)

The Act has also made provisions to provide the powers for Government to ensure that from April 2018, it will be deemed unlawful to let a domestic or non-domestic property that does not meet a minimum energy efficiency standard rating, likely to be set at EPC rating “E”.

Who is liable for the Green Deal charge during tenancy void periods?

The landlord. Responsibility for paying the Green Deal charge moves back from the tenant to the landlord when a property becomes vacant, as is the case with regular utility bills. The Green Deal charge is attached to the electricity bill.

Will landlords be liable if the tenant refuses to pay?

No. The tenant, being the electricity bill payer, will be ultimately responsible, which is no different than with the regular energy bill liability.

Who can take out the Green Deal?

It is likely that tenants will not be able to initiate and take out the Green Deal on a rented property without the consent of the landlord. Conversely, it is understood that the landlord will need to obtain the consent of the existing tenant.

Will new buyers/tenants need to be informed of a Green Deal attachment?

Yes, when a property with a Green Deal attached to its electricity bill is sold or rented, the person considering buying or renting the property should be informed about the Green Deal and what it means for them.

How will new buyers/tenants be informed of a Green Deal attachment?

The Green Deal will be disclosed using the Energy Performance Certificate (EPC), whereby under The European Directive on the Energy Performance of Buildings Article 7, regulation 5A (4) it is a legal requirement to have or have commissioned an EPC prior to marketing a property for sale or rent, with an absolute duty to provide it within 28 days of the property going on the market.

What should I do if I want to find out more?

Please feel free to contact Redstones Brentwood Lettings & Property Management on 01277 230300 or the dedicated public helpline on 0300 123 1234.