Energy Price Cap Details Will Be Crucial For Property Owners And Tenants

British Prime Minister Liz Truss announced last week that energy prices will be capped for businesses as well as for households, raising the prospect that potentially catastrophic rises for landlords and tenants will be avoided.

But details of just how prices will be capped could still have a huge impact on the sector. Some owners and occupiers could be overlooked, leaving them open to big rises. One problem could arise from landlords procuring the energy and then billing the tenant for it through a service charge.

“There has been speculation that this support will only apply to ‘small’ businesses — it is crucial that it is universal,” Savills Energy Director, Property Management, David Thomas said. “Otherwise, you will have small businesses indirectly affected. For instance, a small business in a multi-let office or building, where they are recharged a landlord-procured energy contract, would suffer.”

Another area missed is resi blocks, retirement villages, BTR and student accommodation, Thomas said. Tenants in these sectors are typically recharged a landlord-procured energy contract, leaving them open to a financial hit.

It is crucial the support, unlike the domestic cap, applies to all contracts and not just the default rates, Thomas said, because many property companies have already arranged contracts to hedge against further increases, albeit at very high rates.

Also, it is only with a contract that businesses benefit from Renewable Energy Guarantees of Origin certificates, which offer the ability to procure renewable energy. The certificates are crucial for ESG and net-zero aspirations.

In the long run, in both the commercial and the domestic spheres, property experts said it is vital to make buildings more energy-efficient rather than have the government intervene in the energy market.

“No one would disagree that households will struggle this winter,” said Anika Scott, A/O managing director and head of capital formation. “We support the spirit of what the government is trying to do, but rolling packages of support year-on-year is unsustainable, amounting to around £170B in spending commitments to-date relating to rising energy costs."

According to the government's own figures, upgrading all households to Energy Performance Certificate Grade C would cost £400B and help households reduce their energy bills permanently and cut energy emissions, while increasing energy security, Scott said.

“The government has an opportunity to deploy capital to fund retrofit both to help address rising energy poverty and deliver on climate targets," she said.