Advice to Green Building Council on Pay As You Save

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07 August 2009

A radical new way of funding energy efficiency and low carbon technology in our housing stock has been unveiled by the UK Green Building Council. Burges Salmon partner, Michael Barlow, sat on the Core Group of the Task Group and also chaired the Legal Working Group (comprising Eversheds, Linklaters, Nabarro, DAC, Eon, Chartered Institute of Builders and DECC).

Last month the Government published an ambitious target for 7 million homes to have received a ‘whole house’ package of green refurbishment by 2020, saying it wanted a so-called ‘Pay As You Save’ scheme to help meet this target.

‘Pay As You Save’ describes a system in which the cost of energy efficiency and low carbon measures is paid for over a long period of time, removing the up-front cost for the householder and allowing them to save more on energy bills than they make in repayments.

The proposals would allow home owners and landlords to access up to £10,000 of finance for accredited energy efficiency measures, such as solid-wall insulation and A-rated boilers, reducing carbon emissions from the home while also creating thousands of new jobs.

Michael Barlow said:

“We face a huge challenge to improve the energy efficiency of our 

housing stock, and there are no easy solutions. But this report shows that the legal barriers to the implementation of a Pay As You Save scheme could be overcome through new legislation, which would provide householders with an innovative way to finance the upgrade of their home, reduce their energy bills and tackle climate change. 

Producing the report was very challenging: legal advice in many areas of law (property, data protection, local authority, procurement, water, gas, electricity) was required within a tight six week timeframe.

We had to be creative to come up with a solution which satisfied everyone. For example we had to find a way to attach the repayment obligations to the property without making it seem like a personal loan and without affecting the value of the property, dealing with feedback from the Consumer and Future Sale working groups respectively."

Key findings and recommendations include:

Up to £5bn of capital could be sourced from the private sector every year for investment in greening the UK’s existing housing stock. The money should be held by a third-party finance body, underwritten by Government in order to keep interest rates low for householders.
A range of properly accredited ‘Low Energy Refurbishment Providers’, such as high street retailers, energy companies or builders, should be able to access this finance – up to £10,000 per household - and in turn offer the Pay As You Save proposition to the householder.
Primary legislation would be required to enable the local authority to create a Pay As You Save ‘Local Land Charge’ via which the money is repaid. The Charge attaches to the property and not to the owner and it does not appear on the title of the property at the Land Registry. Instead, it is kept upon the Local Authority Register of Local Land Charges and in effect is ‘passed on’ to future owners until the charge expires after 25 years.
The local authority maintains a schedule of payments to be made for each property, using the same billing process as council tax, presenting the Pay As You Save amount either as a separate item on the bottom of the bill or separately. Debt risk is managed by the local authority, with some debt risk potentially mitigated by a level of support from the Government.

Read more about Pay As You Save.

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Mike Barlow - Environment lawyer