The Carbon Challenge - How Emission Reduction Schemes May Affect Property Lenders

Commercial property is now subject to a range of EU-wide and UK domestic law aimed at reducing carbon emissions. These laws raise important questions for those lending against property.

• Could certain properties become less attractive to target tenants?
• Will properties require costly energy efficiency upgrade works?
• Could property sales therefore become more complicated and costly (whether pre- or post-insolvency)?

All of these issues may have an impact on value, and on the adequacy of a property as security throughout the life of a loan facility.

Metaphorically, carbon reduction legislation takes the form of both carrots and sticks. Lenders are more likely to be concerned with the latter than the former. In this note we therefore focus on three schemes that may bring unavoidable costs for certain owners and users of property: Energy Performance Certificates (see paragraph 1), the CRC Energy Efficiency Scheme (see paragraph 2) and the Energy Savings