Deal or no deal?

20th April 2011

It’s supposed to “revolutionise the energy efficiency of British properties”. It will change the way  private landlords invest in their properties. So why isn’t everybody talking about the government’s Green Deal? 

The Green Deal is one of the measures set out in the Energy Bill currently making its way through Parliament, and it’s easy to understand the logic behind it. We all know that many energy-saving home improvements pay for themselves in reduced energy bills over the life of the property. But our landlord clients are often reluctant to pay for big changes upfront, partly for cash flow reasons and partly because reduced energy bills mainly benefit the tenant. 

The Green Deal would change that, by allowing landlords (as well as householders and businesses) to get this kind of work done on their homes without paying any money upfront. Instead, they sign up to a Green Finance Deal where the money is repaid in instalments added to the property’s energy bills. The finance deal is tied to the property rather than to the owner, so if the property is sold, the buyer inherits the repayments.

In other words, the Green Deal allows landlords to install energy-saving measures that will make their property more marketable to tenants, without incurring any upfront costs. And since tenants usually pay the electricity and gas bills, there may be no costs at all to the landlord. Surely letting agents are shouting the good news from the rooftops?

Oddly, it seems the answer is no. Your reporter contacted many letting agents for comment while researching this article, and most of these were unwilling to comment because they hadn’t heard of the Green Deal before. 

One of the few who had heard of the plans was James Scott-Lee of Chancellors. He said: “Conceptually it’s a good idea, but the devil is in the detail – and we don’t know what the detail is yet. The government hasn’t announced what it’s going to do. There are two potential concerns: one is about charges being put on properties that people wouldn’t necessarily want when they buy them, and the other is that the government will put requirements on landlords to make certain improvements before they can rent out a property. But this is pure speculation, because we just don’t have enough information at the moment. If government recognises the industry’s concerns and acts on them, it will be a very different story.”

We raised these concerns with the Department of Energy and Climate Change (DECC), which is responsible for the Green Deal. Addressing the concern about charges on properties, the spokesman said: “We don’t believe that having a green deal charge on the home will affect the willingness of people to rent or buy the property. Warmer homes with lower bills should increase the overall value and attractiveness of the property.”

The DECC spokesman also explained a core principle of the Green Deal, known as the Golden Rule: essentially, the total instalment payments should not exceed the money you would save on an average bill during the period the deal is in place. The rate of repayments as well as the length of Green Finance Deal periods is yet to be confirmed and will almost certainly vary depending on the type of work, but the Golden Rule will apply in all cases.

DECC has just completed an information-gathering exercise known as the Call for Evidence. This process involved measuring the costs and energy-saving potential of a wide range of measures, from insulation and heating technologies to lighting and micro-generation. The impact of each measure has been judged both individually and when combined with other measures. (For example, your solar water heating will pay for itself more quickly if there’s proper insulation for the hot water system in your house.) This information will allow DECC to set guidelines for the cost of the work and the rate of repayments under the Green Finance Deal. All work will be done by private firms.

We also discussed the prospect of tighter regulation with the DECC spokesman, raising the concerns expressed by James Scott-Lee and others. In response, he said: “The Green Deal offers landlords a real opportunity to invest in the energy efficiency of their properties at no upfront cost to themselves with their tenants repaying through energy bill savings whilst enjoying a warmer property.  

“However, the private renter sector has some of the biggest improvements to make, as it has the largest proportion of lowest EPC rated properties of all tenures – 5.8% compared with 3.4% in owner-occupier. Regulation will only be used as a last resort if we do not see voluntary improvements in the sector.” He told Agreement that a review of the sector will take place to establish whether this regulation is needed. The review will be published before April 2014.

A close reading of the government’s proposals suggests that the Green Deal itself will pose no problems for landlords or property professionals, but other elements of the Energy Bill may mean extra regulation for the sector. For example, from 2015 onwards tenants may be given the power to request “reasonable” energy efficiency improvements to their homes, and landlords may be compelled to carry out these improvements. There’s also extra regulation in store for social landlords, since local authorities may be given powers to force them to improve the least efficient properties before making them available to rent as social housing.  

However, the Green Deal itself represents a no-obligation opportunity for landlords, who appear to be giving it a cautious welcome. Russ Henderson, a landlord from Oxfordshire, said: “I think I’d have to read more of the small print before deciding it’s a good thing, but it sounds like a really good initiative. My only concern would be if the tenant moves out – I would be covering the payments as well as the other costs during that empty period. 

“But it sounds as if otherwise, it doesn’t really cost the landlord anything. I try to keep up to date with grants and schemes available for landlords, and I’ve  had work done through the Warm Front scheme, but I hadn’t heard of this one specifically.” 

This, of course, is an area in which letting agents can add value to the service they offer landlords. By making landlords aware of such schemes and explaining the benefits (as well as the potential drawbacks), letting agents enhance their service and provide yet another reason to use a professional agency rather than attempting to manage the property yourself.

The Green Deal may also provide an opportunity for letting agents to expand their service. We already know that any building improvements done under the Green Deal will be carried out by selected private firms, known as Green Deal Providers. This may mean an opportunity for letting agents to partner with such firms, recommending and arranging the work. 

The Energy Bill also has provision for the harder cases, properties where the improvement work is so difficult and expensive that the work won’t pay for itself in energy savings. This will be taken care of through a new Energy Company Obligation (ECO), taking effect from 2012. This will subsidise the work to the point where it is financially worthwhile for the property owner. DECC describes the new ECO as “bridging the gap”. Again, this is something else for letting agents to tell their clients about: don’t write off that problem property as too costly to improve,because there’s help available. 

The Energy Bill had its first reading in Parliament in mid-March. No date is yet set for the second reading. But there will be a consultation in the autumn on the secondary legislation, which will thrash out the details that aren’t yet in place. This is an opportunity for property professionals to make their voices heard, to raise their concerns with DECC and say what they would like to see in the Energy Bill. But so far, many letting agents aren’t even aware of the forthcoming changes. 

We challenged DECC about the lack of publicity surrounding the changes. The spokesman drew our attention to the information available on the DECC website, adding: “We will work with the sector and Green Deal Providers to ensure landlords are aware, and able to take advantage, of this opportunity.” 

However, this work of raising landlords’ awareness could be done much better by the professionals who have already built relationships with their clients and understand individual needs. It’s time for letting agents to start talking about the Green Deal.