How many of your landlord clients have asked you about the Green Deal? Possibly not that many right now but with just four years to go until the Energy Act 2011 comes into force, that could well change.
The Act requires all commercially and privately let property to meet minimum energy-efficiency standards by 1st April 2018. If a building fails to meet these minimum standards, as rated via an energy performance certificate, then it will become unlawful to let that property. Local authorities will have the power to fine residential property landlords up to £5,000 per property for any breach.
Additional regulations will be made in April 2016 that will compel a residential landlord not to unreasonably refuse a request from a tenant for consent to the making of relevant energy efficient improvements to the property. If a landlord fails to comply, the tenant could apply to a court and seek payment of a sum of money as a result.
As the implications of the Act are only just starting to make themselves felt in the insurance industry, I thought a whistle-stop overview might be useful for those of you with landlord clients.
At the moment, it is expected that properties will need an EPC rating of at least ‘E’ to comply although this could be reviewed and increased as we get closer to 2018. One insurer has examined the impact on property lettings and its conservative estimates suggest that 20% of commercial properties would not hit the standard required – it didn’t even dare guesstimate how many residential properties would fall foul of the legislation in their current state.
Any property not meeting the minimum standards will either have to be withdrawn from the market or upgraded which could of course be costly – which is where the Green Deal comes in. The scheme allows property owners to take out loans to make energy-saving improvements such as insulation, double glazing and even renewable energy generation such as solar panels or heat pumps. The cost of the improvements are paid back over time as the Green Deal is a loan, not a grant but the idea is that the savings made on energy bills after the improvements should cover the repayment of the loan.
Quite what insurers are going to do is unknown at this stage but it is likely that energy efficiency is going to have to feature on proposal forms and will affect reinstatement obligations. It will make a big difference if insurers are reinstating a home which is energy efficient rather than one which is not.
Upgrades to the property may well have an impact on their insurable value and herein lays the most immediate implication of the Act for brokers as they must make sure their clients are insured for the correct amount. It is up to brokers to be proactive and make sure all their clients have insurance that makes any rebuilding or reinstatement meet the new requirements.
And of course if any property is going to be unoccupied for a period of time whilst energy-saving improvements are undertaken, then the landlord’s insurance policy may need to be amended to ensure there is un-occupancy cover in place for an adequate period of time.
This Act impacts on the commercial and private rented sector and goes right down from professional property owners with huge portfolios to the accidental landlords and private individuals who have invested in one or two buy-to-let properties as their future pension fund. Apathy is not an option. It’s going to be important to ensure that your landlord clients keep their sums insured under review to ensure they are adequate for replacement and reinstatement in the event of a claim, which may need to be carried out in an energy efficient manner.
Understanding the demands of the new legislation and complying with the changing standards isn’t necessarily something your landlord clients should have to do by themselves. So swot up on the Green Deal. Go through your client list – and don’t limit it to those that have ‘old’ stock as newer properties could still fall foul. If a building fails to meet the energy-efficiency requirements, it cannot be let and could become economically unviable.
You have a real opportunity to further demonstrate your value by some smart forward thinking and helping your landlord clients to get their properties in shape and adequately insured well before the Act comes into force – and so protect their future financial wellbeing.
