Legal issues with the Green Deal

A number of articles in Building have highlighted the myriad problems with the proposed structure of the government’s flagship energy scheme the Green Deal, referring to “a system of byzantine complexity”. From a legal perspective there’s also a host of difficulties that could arise.

The Energy Act has laid the foundations for the delivery of carbon reduction measures through the Green Deal and Energy Company Obligation (ECO). These will sit alongside other measures such as the roll-out of smart meters, extension of the Renewable Heat Incentive (RHI) to domestic properties and amendments to the Energy Performance Certificate (EPC) regime.

Obtaining the necessary consents may be a barrier to green deal finance

While the central tenet will be for energy savings to outweigh the cost of installing any measures (the “golden rule”), no guarantee will be provided. The rationale is to encourage behavioural change, but taking out a loan with repayments directly linked to lifestyle choices may be a step too far for most people and possibly for some businesses too. However, leaving aside the issue of whether people will engage with the scheme - apathy has been rife in trial schemes - there are potential legal and practical barriers.

A key issue, to which no definitive solution is currently offered, is what form the warranties guaranteeing the work will take. The success of the scheme rests on consumer confidence and warranties will need to be provided for the lifetime of the plan, which in some cases will be 25 years. The warranties will need to be insurance backed, which should address any concerns about installers or providers becoming insolvent. But many of the approved technologies and products have far shorter guarantee periods and installers will only be required to guarantee their works for a reasonable period of about two years. The golden rule will begin to lose its lustre if measures need to be reinstalled several times over the lifetime of the plan.

Another issue arises from the architecture of the scheme: savings can only accrue to the payer of the energy bill. In multi-occupancy buildings, Green Deal finance will only be obtained for works to, say, common parts, with the consent of the owner and of all the separate bill payers. Failure to obtain the necessary consents will invalidate the Green Deal plan. Leases will therefore need to set out clear parameters for obtaining consent. The obligation to meet the repayments passes with the property so the existence of a plan must be expressly notified and acknowledged in transactions for it to bind. The consenting regime could stifle the scheme, and the consultation understandably included a specific call for evidence on the issue.

These factors call into question the effectiveness of the “carrot”, but the much needed “stick” is also lagging behind. The Energy Act provides for mandatory minimum standard EPC ratings of “E” on all rental property from April 2018, meaning that incoming tenants will be able to demand energy efficiency works (whether under the Green Deal or not) to achieve that rating. This voluntary scheme will therefore become mandatory in that respect.

The focus will undoubtedly be on installing demand-side measures, such as insulation. The list of approved supply-side measures is limited for reasons of consumer protection and reputation, meaning that for the time being only tried and tested technologies - such as solar PV - will qualify. Notably, district heating will be excluded. There is a obviously a natural link with other incentives, such as RHI and feed-in tariffs. However, the benefit from these is only realised after installation, through revenue from heat or power generation accruing to the owner of the plant. Access to the up-front funding offered by the Green Deal will therefore be vital for non owner-occupiers.

Getting paid for their work will be uppermost in contractor’s minds. Credibility and reputation are paramount so any payments under the Green Deal must be made on time and in accordance with the “prompt payment code” run by BIS. Allowance will also be made in the finance for the costs of preparatory and making good works, and also, subject to safeguards against abuse, any reasonable unexpected costs that might arise.

The consultation period has just closed, so we wait to see whether practical and simple solutions will overcome barriers before the scheme is rolled out in the autumn.

Kit Harvey is a senior associate in the construction team at Reynolds Porter Chamberlain