UK: The Carbon Challenge ─ What Property Lenders Need To Know About Energy Efficiency Schemes

Last Updated: 11 December 2014
Article by Sam Boileau, Helen Bowdren and James Irvine

One of the main ways in which the EU and the UK Government propose to tackle climate change and reduce emissions is through greater energy efficiency, including efficiency in buildings. Commercial property is now subject to a range of legislation aimed at reducing carbon emissions. These requirements may raise issues for those lending against property, as well as property owners and occupiers.

  • Could certain properties become less attractive to target tenants?
  • Will properties require costly energy efficiency capital improvements?
  • What impact does this have on value and whether a property provides adequate security?

Lenders need to understand two schemes in particular: Energy Performance Certificates and the CRC Energy Efficiency Scheme.

Energy Performance Certificates (EPCs)

An EPC provides information on how energy efficient a building is, giving it a rating from A (very efficient) to G (inefficient). When a building is to be sold or rented out, the seller or landlord must provide any prospective buyer or tenant with a valid EPC and a recommendation report, free of charge, at the earliest opportunity. Certain buildings and transactions are exempt from the requirement to have an EPC (for example some listed buildings and religious buildings).

Under the Energy Act 2011, the Secretary of State has powers to require landlords to achieve a certain energy efficiency rating for a property before it can be let or a lease renewed. These new regulations must come into force by April 2018 at the latest and will make it unlawful to let residential or commercial properties with an EPC rating of F or G (the lowest two grades of energy efficiency).

Key issues for lenders

  • If a property cannot meet the minimum efficiency level, it will effectively be "unlettable" unless the landlord can upgrade it. It is estimated that approximately 20 per cent of non-domestic properties could be in the F or G rating brackets.
  • The proposed new regulations are likely to negatively affect the value of inefficient properties.

CRC Energy Efficiency Scheme

The CRC Energy Efficiency Scheme is a mandatory emissions reduction scheme. It requires companies to monitor and report on energy consumption across all operations within their corporate group. It applies to large energy users (in both the public and private sectors), for example retailers, shopping centres, supermarkets, hospitals, hotel chains, and other large office occupiers such as banks, accountants, law firms and data centres.

If an organisation uses more than 6,000 megawatt hours per year of energy (electricity or gas for heating purposes), it must register as a participant. Participants must then:

  • prepare and submit an annual report, including details of all electricity and gas supplies consumed; and
  • buy CRC allowances equivalent to annual emissions (one allowance per tonne of CO2). The cost per allowance is set by HMRC and is currently £16 for the 2014/15 compliance year.

Key issues for lenders

  • CRC annual compliance costs can be significant (for example, £500,000 per year for a large multi-site retailer).
  • Usually, liability for CRC rests with the end user responsible for paying for the electricity/gas. There are some exceptions – and particular complexities when dealing with franchise operations, joint ventures and private equity structures.
  • The position for landlords and tenants is complex. Large commercial property companies have found that as landlord they are liable for CRC for some properties and not others. Leases typically do not anticipate CRC, and so landlords are in some cases finding it difficult to recover the costs from tenants.

Voluntary schemes

Alongside these mandatory schemes, there are various voluntary schemes, which may also be relevant to property-based lending.

Green Deal

The Green Deal is a Government scheme, launched in January 2013, through which electricity bill payers can obtain funding to carry out energy efficiency improvements to their premises.

There are two options to fund improvements: Green Deal finance and (available very shortly) the Green Deal Home Improvement Fund (GDHIF). Although the publicity for the scheme has focused on residential premises, Green Deal finance is also available for non-domestic properties. Uptake of Green Deal finance has been slow, so the impact of this scheme on the property market remains to be seen.

Rooftop solar

The Government is committed under EU law to sourcing 15 per cent of the UK's energy consumption from renewable sources by 2020 and has identified solar photovoltaic generation (solar PV) as a key part of the future energy mix. The Government has recently announced a shift in policy away from large solar farms and towards rooftop solar. As part of this policy, the Renewables Obligation, one of the principal funding streams for solar projects, is being closed to solar PV projects with a capacity of more than 5MW after 31 March 2015, meaning that these projects will be forced to navigate the new support mechanism of Contracts for Difference two years earlier than other technologies. However, the Feed-In Tariffs (FITs) scheme remains in place and is targeted at small-scale generators, which would include most rooftop solar generation. For further information on rooftop solar, see our blog.

Law stated as at 11 December 2014.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
28 Sep 2017, Seminar, London, UK

On 26 July the FCA published its long-expected consultation paper on the extension of the SMCR to all FCA-authorised firms. The so-called "core regime" introduces the key concepts of regulator-approved senior managers, firm-approved certification staff and conduct rules applicable to virtually all staff.

3 Oct 2017, Conference, Zurich, Switzerland

As the founding Partner of the Europe-Iran Forum, Dentons Europe will once again support this year’s event. This compelling event which explores all Iran-related topics will take place in Zürich on 3rd and 4th October.

4 Oct 2017, Workshop, London, UK

We are hosting an interactive workshop where we will run a mock High Court trial of an employee competition case – where the members of the audience are the judges. The session, aimed at in-house counsel and HR professionals, will offer an insight as to how disputes involving employees moving to a competitor play out in practice.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.