The new Environment Act will come into force on 1st April 2018
The new Environment Act will come into force on 1st April 2018 with one of the main changes being the legal requirement for all privately let commercial property to comply with at least band E of the energy efficiency ratings before they can be leased to new or renewing tenants.
Residential lettings will be the first to be affected, with the deadline of 2018, after which time, residential tenants will have a new right to request necessary improvement work from 2016, and the new rules will then be extended to all leases by 2023.
The unusually long lead time until the regulations come into force will allow landlords to plan the work and phase it as necessary, and ensure that property owners and their tenants can liaise to create the most effective and efficient programme of works for both parties.
There are a few exceptions to the rules
It will be necessary to obtain third party consent to undertake the energy efficient improvements, and if the tenant refuses, then the landlord will not be required to undertake the work until the tenant moves out, or within five years, whichever is the shorter. For multi tenanted properties however, this could be extremely difficult to manage, particularly in the common parts of the building. The rules will also not apply to leases of less than 6 months, or of 99 years or longer.
There are also a number of built in safeguards
A landlord will not be forced to carry out improvement works which are not “permissible, appropriate or cost effective,” for example where the Green Deal limits borrowing to the amount which would be saved on fuel bills, or where the payback period would be over seven years.
They would also be exempt where a tenant has refused consent to improve works in the past, or where the measures would reduce the property value by 5% or more. A centralised register for such exemptions is to be created, and enforced by local authorities, who will also be able to issue compliance notices and ultimately, penalty notices. The penalties are considerable, with a maximum fine of £150,000 and therefore it is important that landlords act now to avoid the potential issues of breaches of this new legislation.
This leads into an interesting yet serious dilemma for property owners and developers. Clearly the potential savings that could be realised by making improvements would be a major consideration when deciding whether to invest or not. So what happens if the cost savings turn out to be less effective than expected?
Protect the investment made in such improvements
AJG have teamed up with one of the a leading insurers to offer an insurance policy specifically designed to cater for this eventuality, and take the risk out of investing in environmentally friendly solutions which may not have sufficient historical data to provide you with certainty around the cost/benefit comparison.
The policy provides cover for the assets installed, revenue generated by projects and shortfalls in energy savings realised each year. Such cover will provide a safety net to investors in energy conservation measures, energy service companies and those financing energy saving projects. If you are in the process of planning your investments ready for the new legislation, feel free to give us a call to discuss this cover in more detail.
Opportunities for Contractors
From a contractors’ point of view, the new legislation is clearly good news, as demand for any kind of energy efficient installations such as window installation, insulation, solar and PV panels will obviously be higher.
The benefits for those enlightened companies who are ahead of the game and already making contact with property owners and developers are potentially huge, but it is vital that anyone considering branching out into new areas where they have not previously had any involvement should ensure that their liability policies provide the right cover.
Checking your business description is vital, as is ensuring that your risk assessments and method statements all cover off any planned widening of the services you offer, along with any policy restrictions which might apply, such as working at height, depth limits for installing ground source heat pumps etc.
Again, if you have any doubts, or would like to discuss the implications of any new area of work, please contact Tracy Keep, AJG’s Regional Construction Leader on 0116 204 3030.