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Let’s remove the barriers to the landlord

ImageA straightforward change to an act of parliament could remove many of the barriers to landlords investing in energy efficiency

[The author acknowledges the work of Dr N Roberts, as published in the New Law Journal (“Keeping warm communally”, 160 NLJ 7423, p 897), in the development of some of the ideas contained in this column.]

The landlord/tenant arrangement is one of the greatest barriers to improving the energy efficiency of buildings. The dichotomy is simply expressed. Why should a landlord, who doesn’t pay the fuel bills, fund measures intended to reduce these fuel bills? In turn, why should a tenant pay for improvements to a property that belongs to somebody else?

I think there is a small alteration that can be made to an established 23-year-old Act of Parliament which could facilitate a way round this conundrum, and really get the Green Deal ethos going in tenanted premises.

Right now, even if the leaseholder is prepared to fund investments unilaterally, some serious legal difficulties constrain action. The tenant’s locus effectively ends at the inner surface of the exterior walls. Any cavity between the two skins of brickwork belongs to the landlord. The “demise” (or legal authority) of the typical top-floor flat ends at the ceiling: the uninsulated attic falls within the “common parts”, the landlord’s domain. Similarly, exterior windows and walls belong to the landlord.

It doesn’t matter whether the building in question is purpose-built, or a conversion. The foundations, main structure, exterior and roof are the responsibility of the ground landlord. That makes it rather difficult for a leaseholder to undertake most of the standard fabric-related energy conservation measures.

So, can the landlord be persuaded to fund the necessary improvements? Since 2004, the Landlords Energy Saving Allowance has permitted expenditure on insulation in residential premises to be offset against tax, up to £1,500 per home. Sadly to date this has only benefitted 0.3 per cent of tenancies.

At present there are no sticks to require landlords to undertake any energy improvements, even for the least efficient (F- or G-rated homes) – although the Scottish Executive now has legal powers to require upgrading. And the last UK government gave notice it intended introducing similar requirements from 2015.

But even when a landlord is amenable to progress (and despite the caricature, many private landlords are just that), present property law does not smooth the path – particularly if each leasehold is for just one in a block of flats, or a single office in an office block. However much everyone may be agreed in principle, the legal matrix makes it really difficult to improve the physical structure.

This is because a landlord is able to pass on any expenditure incurred only if there is clear authority under the existing lease to do so. Very, very few leases make reference to incurring expenditure on energy saving measures. Occasionally, “sweeping up” provisions can be found in leases, permitting landlords to pass through expenditure undertaken for the benefit of the block. Where these exist, theoretically they could be used. But tenants contemplating leases often object to these, as conferring “blank cheque” powers upon landlords.

So energy improvements can really only take place if the landlord is prepared to undertake them, plus the vast majority of (in certain circumstances, all) tenants agree voluntarily to contribute. Section 37 of Part IV of the Landlord & Tenant Act 1987 does permit lease variation, so long as 75 per cent of tenants specifically agree, and no more than 10 per cent object.

Such a significant hurdle is surely the reason this option is seldom employed.

But with a little judicious tweaking, the same Act may present a way around this problem. Section 35 permits either a landlord or a leaseholder to vary the lease, in order to ensure it complies with minimum standards. These are currently restricted to require any lease to contain adequate provision for:

  • repair or maintenance;
  • the provision of reasonably necessary services;
  • insurance arrangements; and
  • the computation of the service charge.

What we now need is a small additional minimum standard. It should relate to the provision of reasonable measures to improve the energy efficiency of the flat/commercial premises, and of the building of which it forms part.

The word “reasonable” is necessary, to assure any sceptics that over-enthusiasm won’t lead to over-specification; the “reasonableness” could, if necessary, be determined by a Landlord Valuation Tribunal.

Most importantly, making this alteration to Section 35(2) would not even require primary legislation. Section 162 of the Commonhold and Leasehold Reform Act 2002 specifically permits this section to be altered by Statutory Instrument alone.

While in no way can such a tweak to the leasehold system be the silver bullet to overcome the landlord/tenant barrier, I would urge Ministers to table this regulatory alteration right now.

Agreed it will have no impact upon those steadfastly uninterested in making any building more energy efficient. These will certainly require new sticks to get moving. But it will be an important liberating signal to those who would like to make some progress in improving the rotten energy standards of our building stock. Which I am convinced includes both the majority of leasehold tenants. And the majority of landlords.

[The author acknowledges the work of Dr N Roberts, as published in the New Law Journal (“Keeping warm communally”, 160 NLJ 7423, p 897), in the development of some of the ideas contained in this column.]

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