How will the Clean Growth Strategy affect the real estate sector?
A new government strategy sets out 50 low-carbon policies/plans to accelerate the pace of 'clean growth'.
In October 2017, the government published its Clean Growth Strategy, a 164-page document setting out 50 low-carbon policies/plans aimed at accelerating the pace of “clean growth”.
A “significant acceleration in the pace of decarbonisation” will be required for the UK to meet its legally binding carbon budgets over the next 15 years. These are set by the Climate Change Act 2008 which requires the UK, by 2050, to reduce greenhouse gas emissions by at least 80 per cent (compared to the 1990 baseline). The strategy sets out what it describes as “stretching domestic policies” to keep the UK on track to meet these carbon budgets.
The headline policies and proposals for those involved in UK real estate (including investors, tenants, developers and lenders) include raising minimum energy efficiency standards (MEES) for commercial property; more effective MEES for residential property; green mortgages and green finance; improvements in energy efficiency consultation; voluntary building standards; streamlined energy and carbon reporting and a closure of the CRC scheme.
The government will consult this year on raising MEES for rented commercial buildings. Currently, from April 1, 2018, properties with an EPC rating of F or G cannot be re-let until relevant energy efficiency improvements are made to bring their ratings up to at least an E (unless an exemption applies and has been validly registered).
With this in mind, landlords and purchasers should pay close attention not only to F and G-rated premises but also to ‘at risk’ premises with an EPC rating of D or E. The likelihood of higher MEES thresholds (and more stringent methodologies for calculating EPC ratings) should be factored into letting and acquisition strategies.
The strategy continues to look at ways of improving MEES in residential properties, with a “long-term trajectory” to achieve a C-rating on as many homes as possible by 2035. The government intends to work with mortgage lenders from the outset of the house buying process, to incorporate energy efficiency ratings into their lending decisions. There is also the suggestion of an introduction of conditional mortgages based on the owner carrying out certain energy efficiency improvements. If such measures are adopted, it could become harder to obtain funding for less efficient properties unless borrowers agree to carry out energy efficiency improvements.
The strategy gives us a clear message and direction of travel. Despite Brexit, which some thought might derail green initiatives, the Government’s commitment to tackling climate change “remains undimmed”.
• Laura Gorman is an associate in Penningtons Manches. Contact Laura at 01865 813702 or email firstname.lastname@example.org.
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