Heritage buildings – planning hurdles for climate change adaptation

Historical buildings make up a significant part of our built environment. With an increasing shift by many local authorities towards "retrofit first" policies, there is a greater need to find ways to carry out sensitive adaptation of our existing building stock to both improve building performance, and to introduce sustainable energy efficiency measures.  However, the regimes seeking to protect our heritage buildings are often seen as a barrier to securing consent for such measures.

The government has been expanding the scope for permitted development rights (where you avoid the need for express planning permission) to more easily carry out energy saving and efficiency measures, but many of these rights are restricted for listed buildings or those located in conservation areas, not least as the works trigger the need for listed building consent. However, since April 2014, local authorities have powers to issue ‘local listed building consent orders’ (LLBCO) which have the effect of granting listed building consent for specified works in respect of a class or group of heritage buildings – therefore avoiding the need to seek individual consents.

Take up for LLBCOs has been relatively slow, but we are starting to see Councils looking to use these to assist with energy efficiency works, most notable the Royal Borough of Kensington and Chelsea, who has made LLBCOs allowing installation of solar panels on most grade II and II* buildings, and also for installation of secondary glazing for grade II buildings.  The government is pushing to see increased take-up of LLBCOs to further support sensitive adaptation of heritage buildings.

There is also scope for building owners to enter into heritage partnership agreements with the local authority. This is a statutory agreement granting listed building consent for various classes of works to a listed building or to a group of listed buildings in common ownership.  Our planning team advised on one of the earliest examples of HPAs which covered the grade II listed Coal Drops Yard in Kings Cross.

In January 2024, the government issued new guidance "Adapting historic homes for energy efficiency: a review of the barriers" which includes various commitments to improve certainty and consistency in the approach to the development of heritage assets, including an intention to prepare a new wider heritage National Development Policy that would replace the relevant chapter of the NPPF.

We are monitoring the proposed shifts in policy and guidance so that we can offer assistance to our clients who are seeking to improve their existing assets (including where this included historical buildings).

Please do reach out to Robert Gowing or Hannah Quarterman if you are interested in finding out more, or have specific heritage-related questions.

An earlier version of this article appeared in Estates Gazette on 26 February 2024.

District heating networks zoning: impact on property developers and investors

Utility infrastructure is critical for any new development or regeneration scheme.  That may be increasing the capacity of existing infrastructure - such as a new or upgraded electricity substation or transformer - or providing new supplies.

In our experience, private investors’ and developers’ ESG goals are often aligned with the government’s target to achieve net zero by 2050.  Developers of new commercial and large residential buildings are increasingly avoiding gas, preferring instead to use low carbon, more sustainable options to generate hot water and heat their buildings.  Any investor acquiring an interest in an existing building will be particularly interested in the building’s current and future environmental credentials.  Renewable power is part of this solution and Hogan Lovells has for years been advising on the development of this sector, including through our work advising on offshore wind infrastructure. 

On many large redevelopment schemes, a district heating network (“DHN”) may be used to supply heat and hot water to buildings.  A DHN centralises the production of heat (in the form of hot water) in one or more locations, and this heat is then distributed to buildings via a system of flow and return pipes.  Each building then draws heat from the network, typically via a heat exchanger.  In the right locations, and with the right technology, buildings can be heated reliably, more efficiently and with a lower carbon footprint than the alternatives.

At the beginning of this year, the government consulted on heat network zoning regulations in England.  The proposed regulations, to be made under the Energy Act 2023, could significantly impact both developers of new buildings, and owners of existing buildings.

The government hopes zoning regulations could increase the total heat supplied from DHNs in England to 20% by 2050 – a significant jump from the current 3%.  Here are three aspects of the proposals that will be of particular interest to developers and existing building owners:

• Why create zones?

              There has historically been only small scale investment in DHNs partly because it is difficult for investors to secure an adequate return.  Put simply: why build an expensive network without the certainty that buildings will connect to it? 

A “Zone Coordinator” (likely to be a local governmental function) for each designated zone will appoint private heat network developers (via a competitive process) who will have the right to develop the DHN within that zone.  These heat network developers will benefit from the following arrangements:

• New buildings within the zone will be required to connect into the designated DHN or (if the DHN isn’t ready) be made “heat network ready”; and
   
• Some existing buildings (including communally heated buildings, and some non-communally heated buildings, but excluding residential buildings with individual heating systems) within the zone will be required to connect into the DHN.

The metrics for designating zones, determining whether a building has to connect to the DHN, the exemptions available, and what “heat network ready” means are likely to be some of the more difficult questions. 

• Pricing

           The Zone Coordinator responsible for implementing a designated zone may also impose pricing conditions, but these are unlikely to apply to large non-domestic consumers.  But although buildings will be required to connect into the DHN, that does not mean they are required to use the heat, leaving building owners and the heat network developer free to negotiate the commercial terms of the heat supply.  Buildings could be connected to the DHN but still be heated by traditional sources, which seems an unattractive, and potentially expensive, outcome.  Clarity on pricing at an early stage would be welcomed by developers.

• Property rights

             DHN providers are currently unregulated, so property rights required to connect a building to the DHN must be negotiated with individual landowners, which can be difficult, costly and time-consuming.  Ofgem will soon become the regulator for heat networks and will have the power to grant licences to DHN developers, granting statutory rights to access and use land.

The zoning consultation is not directly concerned with how this licensing regime will work.  However, it does envisage that a DHN operator appointed by a Zone Coordinator will not automatically be licensed from Ofgem.  The grant of a licence may be a pre-requisite before being given such right to develop.  These two regimes will need to work together to ensure that DHN operators in zones have the necessary rights to construct the DHN and connect into buildings, while at the same time ensuring there is adequate competition between prospective DHN developers within zones.

The consultation closed on 26 February 2024 and – like many in the industry – we are interested to see how the government addresses these issues and more.

What’s new in the new Green Lease Toolkit?

The Better Buildings Partnership’s launch of their heavily revised and updated Green Lease Toolkit has certainly got the market talking.

Since its inception in 2008, the original toolkit had been one of the BBP’s most widely used and recognised tools, and the new toolkit – developed with the support of stakeholders from across the industry – is likely to be adopted as a ‘go to’ resource for many going forward. 

The toolkit had last been revised in 2013, so one of the most frequent questions we’re being asked is “What’s new?”

First of all, it’s worth noting that the new – and greatly expanded – toolkit is far more than just a precedent bank for lawyers.  Intended to be used alongside the range of other toolkits published by the BBP, which focus on the likes of green building management and responsible fit-out, it includes a number of useful resources, ranging from case studies to a suite of options for wording to put into heads of terms. 

When it comes to the green lease clauses themselves, the first thing to note is that in most cases there are now ‘Light’, ‘Medium’ and ‘Dark’ green drafting options – recognising that a wide range of factors (from sector specific to asset specific, and including the fact that owners and occupiers will often be at different stages of their sustainability journeys) will always affect what can be agreed and included in particular leases.

As for the detail, it’s not easy to "compare" the new clauses against the previous toolkit, as so much has changed.  But in very broad and general terms:

• Cooperation: The previous toolkit included an expression of desire to promote and improve environmental performance and an agreement between landlord and tenant to cooperate to identify appropriate strategies.  The new toolkit includes a dark green drafting option which makes provision for specific emission reduction targets to be included.

• Building management: Similar to the above, the new toolkit’s dark green clause make provision for specific emission reduction targets and is more prescriptive about the frequency of meetings and requirements for attendance.

• Data sharing: Whilst the previous toolkit made broad provision for the sharing of environmental performance data, use was restricted to the measuring, monitoring and improving of environmental performance.  The new drafting expands this to cover any reporting required by statutory or regulatory requirements, use for the purpose of gaining voluntary certifications or rating scheme accreditations, and disclosure required for the purpose of either party’s finance arrangements.  Where applicable, the tenant also authorises the landlord to obtain consumption data direct from the tenant’s utility suppliers.

• Landlord rights to carry out works: The new toolkit clauses are more clearly framed with the MEES legislation in mind, with options for the landlord to take advantage (or not) of the "consent exemption".  Generally, compared to the previous toolkit, clearer provision is made for the landlord to be able to undertake environmental improvement works to the building or common areas, even where this may involve interruptions to the building services.  

• Restrictions on landlord’s rights: The new toolkit now effectively gives the tenant the right to veto any works which the landlord might propose to carry out which would have an adverse effect on environmental performance.

• Tenant’s alterations: Even the light green drafting option in the new toolkit now assumes that the landlord should (acting reasonably) in all cases have the ability to prevent the tenant from carrying out any alterations which would adversely affect environmental performance – compared to the previous toolkit which included options for weaker constraints.

• EPCs: The new toolkit now much more tightly regulates the circumstances in which a tenant can obtain an EPC and requires the tenant (if it is obtaining an EPC itself) to use an assessor approved by the landlord.

• Reinstatement: The previous toolkit had included drafting stating that the tenant should not be required to reinstate alterations where that reinstatement would adversely affect environmental performance, unless reasonably required by the landlord having regard to its re-letting intentions.  The new toolkit effectively replicates that position, but now includes detailed drafting options so that, where reinstatement is required, there is an objective to minimise waste sent to landfill.

Reflecting the pace of change over the last decade, the new toolkit now also includes clauses addressing a number of other areas, which were not addressed at all in the previous version of the toolkit.  In particular:

• Social impact: Lighter green drafting requires parties to respond to social impact surveys and to comply with anti-slavery and trafficking laws.  Darker green options cover areas such as workplace employment initiatives, D&I policies, delivery consolidation and policies regarding food waste and other sustainable business practices.

• Sustainable use: Focusing on the need for "behavioural change" as well as a building’s physical attributes, the toolkit now includes clauses requiring the parties (1) not to operate the premises/building in ways which increase energy and water consumption and (2) to seek to minimise such consumption.

• Circular economy: Suggested clauses in the new toolkit cover circular economy principles by prescribing a hierarchy of materials (reused, low carbon, recycled, recyclable) which can be used.

• Waste management: Drafting options in the new toolkit require at least reasonable endeavours to be used to minimise waste to landfill, with darker green options for compliance with waste policies and obligations to seek to meet specific waste recovery targets.

• Building standards: Recognising that increasing numbers of buildings will have other environmental ratings, beyond EPCs, which need protecting, the new toolkit includes drafting options aimed at preventing the premises/building from being used in a way which would prejudice or jeopardise ratings such as NABERS.

• Service charge: A number of drafting suggestions are included in order to, on the one hand, enable recovery of service costs incurred in a way intended to promote or improve environmental performance and, on the other hand, to prevent the landlord from acting in an environmentally irresponsible manner.

• Renewable energy: The new toolkit also includes provisions which promote the procurement of renewable electricity, with options for green tariffs/green suppliers/on-site generation to be prescribed.

Green lease corner – clause analysis

In each issue of this bulletin we have taken a brief look at a particular green lease clause (or group of clauses) and this time we are taking a look at data sharing clauses.

Perhaps the least "interesting" of the various green clauses on the face of it, data sharing clauses are nevertheless consistently highlighted by our clients as being the most key element of green lease drafting when it comes to being able to deliver meaningful impact.  Indeed the Better Buildings Partnership, in the new green lease toolkit, don’t even option different drafting options for light, mid and dark green leases; a fully comprehensive data sharing clause is simply mandated as being of critical importance.

The clause will generally require both parties to share energy, water and waste data with each other, usually subject to some degree of confidentiality undertaking, and – if not covered elsewhere in the lease – the data sharing provisions may also be accompanied by drafting ensuring that landlords are allowed to install meters or smart meters as required.  There are, however, specific issues which still need to be considered.  These include:

• What is the scope of the data that will be the subject of the obligations?  The BBP green lease toolkit contemplates that the data sharing clause might be expanded in scope to include social impact data as well.

• What can the shared data be used for?  A standard clause will be likely to permit the data to be used at least for the purpose of measuring, monitoring and improving environmental performance of the premises/building.  But many parties will now want to be sure that they can use data for the purpose of any reporting required by statute or by regulatory bodies, or for the purpose of seeking or retaining voluntary certifications under the various environmental ratings schemes such as BREEAM In-Use and NABERS.

• How is the data to be collected?  Landlords are often now tending to seek their tenants’ consent for consumption data to be obtained directly from the tenants’ utility suppliers.

Our latest ESG training for clients

We can provide training on a wide variety of topics including ESG risks for your properties, biodiversity net gain and conservation covenants. Please reach out to any of the Contacts on this Bulletin who would be delighted to assist.

Authored by Chris Somorjay, Robert Gowing, David Horan, Hannah Quarterman, Stella Bliss, and Ingrid Stables.