The climate challenge

The UK government under Boris Johnson pledged to make all sectors of UK economy net carbon zero by 2050 and set out policies and proposals to achieve this target in its Build Back Greener strategy paper. This includes a number of initiatives designed to make Britain’s buildings more energy efficient in the way they are built and heated. 

Whether these pledges will survive the administration of the incoming new prime minister remains to be seen, but if implemented these duties, along with a range of other green proposals from the government and other bodies, surrounding planning, electric vehicles, renewable energy, sustainable housing and more, could mark something of a sea-change in the way property professionals practise.

Rented property and energy efficiency

The property sector is in the crosshairs for UK policymakers and investors concerned about long-term sustainability and Environmental, Social, and Governance (ESG) performance, says Stephen Sykes, an environmental and insurance lawyer at Capital Law, specialising in mitigating ESG liabilities for corporates, lenders and public sector bodies.

This is perhaps unsurprising given that almost half of our greenhouse gas emissions relate to building, powering, cooling and heating property in the UK.

This, says Sykes, explains why we are seeing proposals to accelerate the retrofitting of our old housing stock to make it more energy efficient pursuant to the Minimum Energy Performance of Buildings (No 2) Bill. 

“Under this law all new tenancies will be required to have an energy efficiency performance of at least EPC Band C from 31 December 2025 and all existing tenancies must be at least EPC Band C from 31 December 2028 where it is practical, cost-effective and affordable to do so. These deadlines are fast approaching. There are concerns about the availability of sufficient contractors and other retrofitting specialists to deliver these highly ambitious goals,” he says. 

The current position, explains Alexandra Holsgrove Jones, senior knowledge lawyer at TLT, is that a landlord cannot let a property with an EPC rating of below E, unless an exemption applies and has been validly registered. “This prohibition has already been extended for residential properties, so it is unlawful to continue to let a sub-standard domestic property. From 1 April 2023, it will also be unlawful to continue to let a substandard non-domestic property, bringing many more commercial properties within the scope of the prohibition.”

However, if the proposals set out in a 2021 government consultation  are brought in, we will see the minimum energy efficiency standard for non-domestic properties rise to a C in 2027, and then B in 2030. For domestic properties, the intention is that new tenancies of properties with a rating below C will be prohibited from 2025, with those already subject to tenancies caught from 2028.

The result will be that many more properties will be labelled ‘substandard’ and landlords will either have to get them up to the minimum standard, or register an exemption, says Holsgrove Jones. 

“Given the financial limit on what landlords have to spend per property, we are likely to see properties being improved, but a large number will still not meet the minimum standard and exemptions will need to be registered. So, we may see an increase in EPC ratings, but there will still be a huge number of properties that fall short of the required standards. The government will, however, be able to say that it has brought in legislation raising minimum EPC standards and it may feel that it has, by so doing, done enough. However, this alone won’t get us to net zero,” she adds.

If the law is changed and all new rental tenancies are indeed required to have a rating of C or above, landlords with a large portfolio of properties will have a hefty bill coming to bring their properties up to the required standards, says Joshua Gillam, a solicitor specialising in new build conveyancing for Taylor Rose MW Solicitors. “They may be forced to sell rather than upgrade their properties.”

For property law practitioners, all this means that considerations will need to be made as to leaseholders obligations of maintenance etc, he says. “This can refer back to communal heating systems (which have been around for some time) in new build blocks of flats. It can be challenging outlining to a client that they would not be able to change energy suppliers and are linked to the supplier chosen by the developer during the build process.”

New building standards

The Future Homes and Buildings Standard, working in conjunction with Building Regulations to require new homes built to produce 75-80% less carbon emissions than under current regulations from 2025, will significantly help to reduce UK properties contribution to C02 emissions and improve housing sustainability, says Allison Thompson, national lettings managing director, Leaders Romans Group.

Homeowners and buyers’ attitudes in conjunction with evolving innovation will change significantly to favour eco-homes. Therefore, conveyancers should expect to see an increase in availability of recycled, biodegradable, and sustainable materials as well smart appliances, smart meters and eco-charging ports, she says.

“With consumer demand for sustainable homes on the rise, the property sector must act now, and be at the forefront of such changes and lead by example, such as having an ESG policy. It is important that property professionals note that ESG messages should be consistent, whether internal or external, and most importantly should be a care of duty with both subsidiaries and supply chains,” she adds.

It is clear that carbon emissions are a key issue in the built environment, and those in the industry need to work together to reduce emissions, says TLT partner Katherine Evans. “Collaboration between landlords, tenants, investors, and lenders is required, as well as government support, both in terms of initiatives and forward-looking legislation, particularly around planning for renewable energy generation.”

The increasing cost of energy is a challenge for everyone, and it is widely accepted that we need to increase renewable energy production, she says. However, the lack of government support for onshore wind in England means a missed opportunity to provide a type of renewable energy that is proven and can complement the provision of other technologies. 

“The promotion of electric vehicles, for example, is of limited benefit unless the electricity comes from renewable sources. Since 15 June 2022, it has been a requirement for developers and property owners to install electric (EV) charge points in certain circumstances. These regulations apply to new residential and non-residential buildings with on-site parking, as well as residential and non-residential buildings that undergo major renovation work. Without an increase in renewable energy production, such initiatives are rather hollow” she adds.

The pace of change

The pressing climate emergency means design changes are clearly needed to new buildings to make them more sustainable, and to this end, the government has brought in a range of new regulations covering minimum energy efficiency standards, conservation of fuel and power, ventilation, overheating and electric car charging infrastructure. 

One of the key considerations of regulations such as these is the pace at which changes are happening, says Mitakshi Sirsi, director, Sustainability at WILL+Partners, an architecture and workplace design practice. “There seems to be a consensus among industry professionals that we aren’t going far enough, fast enough.”

Some of these regulations are coming into force now and the first examples of compliance and attempted compliance are only just appearing, she says. “While there is some confidence that the initial snags in the SAP10 calculation system / software will be addressed, the fact that the software was late in being released and covered only three-quarters of the buildings it needs to cover gives property professionals something to worry about – are the new regulations going to cause further delays and confusion for projects?”

The reporting requirements introduced by the government also have a varied impact, she says. “The sense of urgency to address climate impact and the introduction of the new regulations has driven a wave of demand for responsible and sustainable investment opportunities in commercial real estate. Investors are leading the way with calls for consistent and useful data to help them invent in sustainable companies, and occupiers including real estate sustainability needs within their ESG goals to improve their value. This has a trickle-down impact on all professionals working in the real estate industry, including a need to add environmental skill sets to their existing job profiles.”

We are likely to see search providers releasing ‘climate risk reports’ as more data on climate change risks becomes available, says Evans, although it remains to be seen whether climate risk reports will become commonplace. 

“If they do, in time we could see them being akin to EPCs, which a seller/landlord has to provide prior to entering into a transaction. Climate risk is already a concern to many lenders, who will be undertaking their own assessments when deciding whether to provide finance, so even those in the industry who are not currently considering climate change will need to do so,” she says. 

Evans warns, however, that as conveyancers are not climate change scientists, they will be faced with a number of questions that they may not be able to answer. “Will such reports, which are not concerned with legal title, expand the duties of conveyancers? Should surveyors be the professionals charged with advising on climate risk in relation to properties, given that the results of climate change will be seen in the form of issues such as subsidence? Will the reports be realistic or alarmist and, if the latter, could they leave some properties unsaleable or with very high insurance premiums?”

There is a strong case for concluding that solicitors already owe their clients a climate duty of care, so the sooner they start to discharge it, very much the better

Duty of care

There is an increasingly compelling case for arguing that property (and indeed other) lawyers owe their clients a clear duty of care to warn them about the serious risks of climate change to UK land and buildings, says Sykes.

To this end, the Law Society has issued its Climate Change Resolution (October 2021), calling on the profession to step up to the climate challenge and to advise clients about climate risk. Work is also under way to produce a climate risk practice note. 

“While solicitors should keep an eye on this important initiative to ensure that they understand it and comply with it, there is a strong case for concluding that solicitors already owe their clients a climate duty of care so the sooner they start to discharge it, very much the better,” says Sykes. 

“In addition, commercial report providers, such as Groundsure, are now providing climate risk data for specific sites in their standard environmental reports to determine the extent to which they are at risk over timeframes of one, five and 30 years. Conveyancers will need to increase their understanding of climate risk and how it impacts UK land and buildings; take a close look at the climate data out there; and take appropriate steps to discharge their climate duty of care,” he adds.

Becoming more energy aware

Given the number of buildings that exist today which will still be around in 2050, we can certainly expect to see a growing number of these being repurposed, argues Kevin Mcguane, sector MD, Energy Services DMA Maintenance at DMA Group, and the green agenda will also be guided by the ongoing trend of working from home and what this means for surplus corporate real estate. 

“What this means is that property professionals will need to become more environmentally, green and energy efficiency aware. They will need to be able to, with confidence, articulate and understand what the net zero drivers, limitations and solutions are,” he says.

Conservation covenants will be another new consideration for property professionals when they come into force in September. Introduced by the Environment Act 2021, conservation covenants are a private voluntary agreement between a landowner and a third party such as local authority or conservation charity which impose commitments on the landowner to do or refrain from doing specified things on the land that have a ‘conservation purpose’. 

These form part of the government’s 25-year environmental plan, says Gillam. “Essentially these allow a voluntary but legally binding agreement between a landowner and a third party to preserve the natural features of the land. These agreements will not only be binding on the landowner at the time of the agreement but also subsequent owners of the land.”

Planning issues

The Levelling-up and Regeneration Bill includes a number of interesting proposals in the world of planning and environmental law, says Jill Crawford, a specialist environment lawyer at Irwin Mitchell. 

“The Bill, as it currently stands, provides the power for local authorities to force landlords to rent out vacant commercial properties via a ‘rental auction’. Whether this will have the intended effect remains to be seen, however it is more likely that the outcome of this proposal will be to push landlords to convert many of these units into residential properties. However, again there is talk in the debates taking place among the new Conservative leadership hopefuls to replace Boris Johnson that ‘levelling up’ will be abandoned.”

Biodiversity net gain, meanwhile, is set to become a requirement for planning applications from November 2023, she says. “The overarching aim is to deliver ecological improvements through habitat creation or enhancement by avoiding or mitigating harm caused by development. While this is high on the agenda for many local authorities and developers, these requirements will hopefully create greater focus on environmental protection.”

In terms of the Environment Act 2021, she adds, expect to see statutory instruments laid in October 2022 for legally binding environmental targets on biodiversity, water quality, air quality, waste and resource efficiency. “The resource efficiency targets may impact on property development in terms of sources of material and proposed changes of disposal of construction waste.”

At the end of the day, says Evans, legislative change takes time and action against climate change cannot wait – and property professionals have a key role to play in this.

“Contractual provisions should be used to move the industry towards net zero now. The Chancery Lane Project has drafting that can be used in contracts across many sectors and practice areas. From a built environment perspective, drafting is available to cover the whole lifecycle of a project, from identifying the land, going through the planning system, financing the project, construction and supply chain issues, through to leasing the building. Examples include circular economy drafting for leases (Aatmay’s clause), clauses about the use of renewable energy (Lotta’s clause and Oisin’s clause), and drafting to deal with alterations that improve the environmental impact of buildings (Rosie’s clause).”

She adds, however, that we need more people in the industry to talk about sustainability and net zero drafting at the outset of a transaction. “It shouldn’t just be an ‘add on’; it should be integral to the deal. Including it in standard form Heads of Terms, like that produced by RICS, would be a great start.”