Energy Act, Green Deal and EPCs: Key legal points to remember

The Energy Act 2011 received Royal Assent on 18 October 2011. The Act, once full in force, will implement a number of energy-related measures, which will assist the government in meeting its 2020 carbon reduction targets.

The Green Deal

The flagship policy being introduced by the Act is the Green Deal, which is the coalition government’s energy efficiency initiative. It will enable occupiers of domestic and non-domestic premises and private sector landlords, to receive finance upfront from accredited providers to make energy efficiency improvements, which will be paid for through energy bill savings. The government considers that removing the upfront costs of making energy efficiency improvements is the key to updating properties and reducing carbon produced from buildings.

The first Green Deals are expected to appear in October 2012 but much work is needed before then. On 23 November 2011, the Department for Energy and Climate Change (DECC) launched a consultation on the details of the Green Deal. The consultation includes draft secondary legislation to implement the Green Deal and a draft Code of Practice for Green Deal participants. The consultation closed on 18 January 2012. The necessary secondary legislation is expected to be laid before Parliament in the spring.

Some commentators are concerned that the existence of the Green Deal finance plan might make it harder to sell a property. Such a consequence would be unwelcome in an already difficult market

The DECC has stated that it expects a range of institutions (including many well known large companies) to be involved in offering Green Deal finance plans. However, some commentators are questioning the likely take up of the Green Deal with particular concern that the likely level of interest offered on finance loans may be discouraging.

Of particular interest to property owners is that a Green Deal finance plan (some of which could last up to 25 years) will be tied to the property and its energy bill, not the owner or occupier. When a property is sold or rented, the new owner or tenant will become responsible for paying the Green Deal charge, as part of the electricity bill.

The Green Deal will be disclosed using the Energy Performance Certificate (EPC) and buyers / tenant will need to acknowledge in the sale contract / lease that they will be liable for the Green Deal charges payable.

Some commentators are concerned that the existence of the Green Deal finance plan might make it harder to sell a property. Such a consequence would be unwelcome in an already difficult market.

Other key points of the Energy Act

• Landlords of both residential and commercial premises will be unable to let properties that fall below a set level of energy efficiency unless they make certain improvements. There are some exclusions, for example in relation to social housing. The level of energy efficiency will be demonstrated by the property’s EPC and the intention is for this to be set at EPC rating ‘E’). The rule is to be brought into force by 1 April 2018.
• Landlords of certain residential premises will not be able to unreasonably withhold consent to a tenant’s request to carry out qualifying improvements that would increase the property’s energy efficiency. The regulations are to be brought into force before 1 April 2016.
• The smart meters powers in the Energy Act 2008 are amended to allow the government to direct the approach to the roll-out of smart meters until 2018.

Changes to EPC requirements coming into force in 2012

The 2007 Regulations relating to the energy performance of buildings have been amended and the new 2011 Regulations come into force on 6 April 2012.

The regulations apply to both domestic and non-domestic buildings and require an EPC to be produced when buildings are constructed, sold or rented out. In addition, the regulations require regular inspections of air-conditioning systems.

The key changes are:

• An EPC will need to be commissioned before marketing for all properties (including non-domestic), whether the property is for sale or rent. There will be an obligation to use all reasonable efforts to ensure that an EPC is obtained within seven days of marketing the building (although there will be an additional grace period of 21 days in which to obtain the EPC if it has not been obtained within the initial seven day period);
• Residential properties (but not commercial) that are marketed prior to 6 April 2012 can continue to benefit from the current longer time periods for obtaining an EPC ie within 28 days of marketing the property;
• For all properties marketed on or after 6 April 2012, the written property particulars must include a copy of the EPC. It is no longer possible to include only the asset rating;
• From 6 April, it will become mandatory for air conditioning inspection reports to be lodged with the central government register. (This requirement already exists for EPCs).

The new regulations are more onerous on agents acting for sellers and landlords. Agents will now need to check whether an EPC has been commissioned before the marketing of any building.

In addition, sellers and their agents should take heed that there is no defence to a failure to obtain an EPC within the first 28 days of marketing a property and so an EPC should always be obtained prior to marketing a property.

James Nadin is a partner at Pennington Solicitors