In 2022, the Law Society confirmed that solicitors have a legal duty to consider climate change with clients as part of acting in their best interests. The guidance is split into two parts:

  • How organisations can manage their business in a way that is consistent with the UK’s legal commitment to transition to net-zero; and
  • How climate change is a risk to clients and issues which may be relevant when considering legal advice.

More information on the Law Society’s Guidance can be found here – Impact of climate change on solicitors | The Law Society. Specific guidance from the Law Society for the property sector should appear early in 2024. It will help the sector to convert the general risks into practical steps.

The impact of climate change on our planet is undeniable, and the property sector is a significant contributor to this global challenge. The Government’s Climate Change Committee’s findings reveal that buildings contribute to a staggering 17% of greenhouse gas emissions, with the UK having some of the least efficient buildings in the world. This not only poses environmental concerns, but directly affects business success due to increased energy costs. In this article, we explore the climate risks associated with property acquisitions and provide insights for buyers and owners to navigate potential challenges.

What are the Climate Risks for Property?

Physical Changes

Climate change brings about physical challenges, jeopardising the integrity, usability, and insurability of buildings. From coastal erosion to ground instability and various forms of flooding, understanding these risks is crucial for employers with health and safety obligations.

Loans and Financial Impact

Lenders are now required to report to the Treasury on climate change’s impact on their property portfolios. Properties at risk may face future borrowing challenges, e.g. making borrowing harder or more expensive and impacting resale value. However, climate-resilient and efficient properties could benefit from more accessible financing through “green mortgages” – a product that affords preferential terms if a borrower can demonstrate that the property they are borrowing for meets certain environmental criteria.

Reputational Damage:

Businesses are increasingly focusing on transitioning to net-zero, driven by environmental, social, and governance values. Failure to comply with rising Energy Performance Certificate (EPC) requirements may lead to financial risks, penalties, and PR damage for investors and landlords.

What can property owners do to mitigate the impact?

Obtain good information

Solicitors’ environmental searches now include a business planning tool to assess short and long-term climate change risks for a property. Tailored advice can help clients understand the potential impacts on operations, borrowing power, and resale value. It is therefore important when you instruct your solicitor to make it clear what you intend to do with the property (e.g. occupy, develop, borrow against, etc.) as well as how long you intend to own it.

Explore new deals

Consider green leases, aligning with the growing trend of responsible property management. Green leases are becoming increasingly popular with both landlords and tenants. They can set specific responsibilities and obligations on both landlord and tenant to minimise carbon emissions arising out of development, operation and occupation of a property. These obligations could include maintaining EPCs, waste reduction/management/recycling or using sustainable materials or green energy.

Improve your properties

Review your property portfolio to ensure compliance with government regulations combating climate change. Given that lenders are now considering how green their lending portfolios are, it is the perfect time for investors to be doing the same. Plan improvement works to achieve the expected B rating by 2030, potentially increasing rental values and attracting environmentally conscious tenants.

Build better

Manage building works and renovations sustainably, reducing waste and carbon emissions. Communicate your sustainability goals to builders and solicitors to explore eco-friendly options.

Early-mover advantages

Stay ahead of the curve by planning for climate change. Early movers can benefit from advantages, contributing to the UK’s ambitious net-zero targets.

Planning for a sustainable future

As the challenges of climate change continue to unfold, proactive steps taken by property owners and investors can lead to both environmental and financial benefits. For more information on planning for climate change and contributing to the UK’s net-zero goals, reach out to our team of experts. Join us in building a sustainable future for our properties and the planet.

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Ashley is a Solicitor working in the Residential Development team assisting with the acquisition and disposal of development land.

She assists senior colleagues with both landowners and developers on transactions including Option Agreements, Conditional Contracts and Overage.

Ashley also has experience with dealing with commercial property transactions including the grant of new leases, acquisitions, disposals and lease renewals.

 

 

Written By

Published: 5th February 2024
Area: Commercial Development

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