The Green Deal is set to become part of the conveyancing process where the property being sold has a deal in place.
What is it?
The 'Green Deal' is one of the coalition governments flagship policies. It is a government initiative that aims to reduce energy consumption by encouraging property owners to install energy saving measures in the UK's relatively elderly housing stock .
While newly built properties have to comply with building regulations that increasingly include many requirements for improving energy efficiency, these regulations do not apply to the vast majority of the existing UK housing stock.
Even though home owners were aware that by making certain improvements to their homes they could reduce their energy bills, not enough people were making such improvements. The evidence was that most people were deterred by the upfront costs involved.
Government sought means of encouraging people to carry out these works (such as installing loft insulation, cavity wall insulation and the new energy efficient boilers etc) and the Green Deal is the result. It aims to defer what were the upfront costs, so that the savings from the resulting reduction in energy consumption, are used to fund the works.
Which properties can it apply to?
There can be Green Deals on residential and commercial property. It applies not only to homeowners living in their own property but also to the landlord community. Before the arrival of the 'Green Deal' there was little benefit to landlords in spending money on energy saving measures when this was likely to result in reduced energy bills for tenants without a corresponding increase in rent.
Under the new system however, the landlord can arrange for work to be carried out, but pass the cost on to the tenant by the mechanism that aims to provide that the savings in energy bills are used to pay for the works.
The upfront costs are borne by the private sector suppliers carrying out the installation works.
How is it repaid?
The means of repayments being made is through electricity bills. The cost of the work is advanced upfront by the installer and a charge is taken over a number of years, (up to 25, depending on the nature of the works), which is discharged by payments made in addition to the energy costs as set out on the electricity bill.
If the reduction in energy consumption works as intended there should not be an increase, or a marked increase, in the amount being paid through the electricity bill.
The Green Deal is based on the 'Golden Rule' which says that the payments for improvements should be lower than the anticipated saving in the energy costs as shown on the electricity bill.
This may not always be the case however because the energy usage of the property would be very different, for example, if it were to be occupied by one occupant after having previously been occupied by five people.
What is the status of the outstanding monies?
Because the debt effectively attaches to the electricity supply for the property it has a relatively unusual status. It is not a formal legal charge and it is not the personal obligation of the person who commissioned the works. The person commissioning the works does not retain the benefit of these if they move. The benefit remains with the property.
It is the property that benefits from the lower energy consumption and therefore it is the property that needs to be tied to the continuing payments.
Why does this impact on the conveyancing process?
The unusual status of the loan is the main reason for that it impacts on and involves the conveyancing process. The legislation provides that where there is a property subject to a Green Deal:
- anyone selling it has to disclose the existence of the Green Deal to a buyer, and
- anyone buying such a property has to be made aware of it and, as a separate measure, agree to be bound by the terms of it. They have to acknowledge its existence.
The Green Deal does not operate like an overriding interest or some other matter that is affixed to the property to which the buyer or new tenant automatically takes subject.
The Green Deal Framework (Disclosure, Acknowledgement, Redress etc) Regulations 2012 specifically provide that this will not happen. The Regulations set out the duty on those selling; the estate agent or the private seller or the landlord, to disclose to any viewer of the property the fact that the property is subject to the Green Deal.
When will these transactions arise?
They could arise now but because it is necessary for a Green Deal to have been set up and in place and for the property to be being sold before conveyancing solicitors need to be involved it may be some time until these sorts of transactions are seen in any numbers.
The scheme was introduced at the end of January this year and the Department of Energy and Climate Change (DECC) produced its guidance for the property industry at the end of March this year.
The Green Deal: Guidance for the Property Industry in Great Britain
The issue is not one for conveyancing solicitors until properties that are the subject of a Green Deal change hands.
How do you find out if a property has a Green Deal?
The main way to learn about whether a property is subject to a Green Deal is through the Energy Performance Certificate for the property. If any works are carried out under a Green Deal a new Energy Performance Certificate needs to be provided.
The buyers will need to look at the contents of the EPC to see which works have been carried out, the terms on which the financing operates and how long it still has to run.
To some degree the buyer will have to assume some of the obligations of those who had the works installed. These might include, for example, the maintenance and termination provisions.
The seller has to make sure that the buyer is aware of the Green Deal before they exchange Contracts and are committed to the transaction. They have to give a disclosure document at least seven days before exchange and then the buyer has to give an acknowledgment in the Transfer.
The acknowledgement by the buyer has to be in a prescribed form in order for them to be bound. In the event that a buyer buys a property that is subject to a Green Deal and they say that did not know about it then the debt maybe left with the outgoing seller.
The seller could be in breach of Regulations and potentially liable for the continuing repayments even though they are not in receipt of the benefit of the reduction in energy costs.
There have been discussions as to whether it is likely that the buyers would try to insist on deals being paid up so that the buyer can take the property free of Green Deal commitments.
It remains to be seen what will happen in practice. It may be that once the buying population becomes used to these transactions this will not be a common outcome.
There are other implications for landlords and lenders.
The new TA6 form asks about the existence of a Green Deal and it is hoped that this will prompt buyers and sellers as well as their solicitors in relation to the existence of a Green Deal on the subject property.
Further practice information
Conveyancing solicitors will be involved in the transfer, letting or charging of property subject to the Green Deal. The chair of the Conveyancing and Land Law Committee, Jonathan Smithers, and others at the Law Society have been involved in meetings with DECC and are due to meet with them again towards the end of this month.
The Conveyancing and Land Law Committee will be producing a practice note about transactions that have a Green Deal.