The Green Deal – a lukewarm reaction?

    Is the Government’s Green Deal, launched on 28 January, as good as it sounds for landlords?

    The scheme provides loans to cover the upfront costs of installing energy-saving measures, such as new boilers, insulation, double glazing or renewable technologies. As an incentive, the Government is offering a cash-back payment of up to £1,000.

    The loan will be repaid through the resulting savings on energy bills. This system, known as ‘the Golden Rule’, means that no one should pay back more in loan repayments than they are saving on their energy bill; overall savings would therefore only be made once all repayments have been made.
    From April 2016, Landlords will not be allowed unreasonably to refuse requests from tenants to improve energy efficiency if finance is available through the Green Deal. And from April 2018, Landlords will be required to ensure minimum efficiency standards, likely to be set at an ‘E’ EPC rating, or face a penalty of up to £5,000. This new legislation represents a real threat for landlords with let portfolios, and the Green Deal may seem a real opportunity to mitigate the cost.

    The interest rates payable under the Green Deal are unconfirmed. The Government has indicated rates of between 7% and 8%; many property-owners might prefer to source alternative finance at more competitive rates. However, the Green Deal’s interest rates will vary according to each scheme, so the deal is worth considering against traditional forms of borrowing.

    A Green Deal loan is attached to a property, not an individual, potentially causing administrative burdens and making a property less desirable to prospective tenants — it is incumbent on the Landlord to make new tenants aware of any Green Deal repayment responsibilities. If a Tenant were to default on repayments, the Landlord would be responsible for any debts and make repayments in void periods. Consequently the scheme may be best suited to owner-occupied homes, staff properties and long-term lets.

    Listed buildings do not require an EPC and will therefore be exempt from the minimum EPC requirement. However, such buildings are still eligible for Green Deal finance.

    Landlords and owner-occupiers should remain aware of rising energy costs, the increasing pressure to improve energy efficiency and the resulting impact on the letability and capital value of their assets. Careful planning is required in order to take account of new responsibilities and opportunities.


    Key contacts

    Jonathan Dymock

    Jonathan Dymock

    Rural Aberdeen

    Savills Aberdeen

    +44 (0) 1224 971111

    +44 (0) 1224 971111