Leasehold Tenure Limits Net Zero Enhancements

Owning a leasehold property means you have the right to live in a property for a fixed period, but you do not own the land beneath it. As a result, making sustainable modifications is not straightforward.

• Leaseholders cannot make substantial changes without permission from the freeholder.
• A license to alter is often required, making even internal improvements challenging.
• External improvements, such as solar panels or insulation upgrades, are often classified as "improvements" under lease terms and may not be recoverable through servicechargesorted.co.uk/blogs/service-charge-disputes-what-cam-be-disputed-how-and-the-role-of-the-first-role-tenancy-agreements-made-easy'>planetrent.co.uk/blog/could-a-tax-tribunal-ruling-mean-btl-investors-avoid-3-stamp-duty-surcharge'>tribunal'>service charges.

This bureaucratic barrier discourages leaseholders from pursuing energy-efficient upgrades, ultimately hindering Net Zero efforts.

Does Short-Term Thinking Prevent Sustainability Initiatives?

Leaseholders and landlords often have conflicting priorities when it comes to sustainability and Net Zero targets.

• Leaseholders typically focus on the short-term benefits of their property.
• Landlords, unless they are leaseholder-run entities such as RTMs or RMCs, tend to prioritize long-term investments.

This misalignment of goals creates barriers to introducing sustainable measures that could contribute to Net Zero.

How Right to Manage (RTM) and Residential Management Companies (RMCs) Fit In

In some cases, leaseholders do have a say in the management of their building through RTM companies or RMCs. Here’s how they work:

1. Right to Manage (RTM) Companies: Leaseholders can take over management from the freeholder, gaining more control over maintenance and sustainability decisions.
2. Residential Management Companies (RMCs): These companies, usually set up by developers or freeholders, allow leaseholders to participate in decision-making regarding shared spaces and service charges.

While RTMs and RMCs give leaseholders some authority, decisions must be made collectively, often requiring a quorum and voting system. This process can be slow, making it harder to implement sustainable upgrades efficiently.

Limited Influence Over Shared Spaces

Many leasehold properties feature communal areas, such as hallways, gardens, and parking spaces, which are managed by the freeholder or a managing agent. Leaseholders often have little say in making these areas more sustainable. Why freeholders hesitate to invest in sustainability initiatives:

• Cost concerns – Upfront investments in renewable energy and energy-efficient systems can be significant.
• Limited financial incentives – Without government-backed schemes, freeholders may see little financial benefit in making green upgrades.
• Lack of awareness – Some freeholders may not understand how sustainability improvements can reduce long-term costs.
• Leaseholder resistance – If not all leaseholders agree to fund green initiatives, it can be difficult to proceed.

Legal Barriers Make Net Zero Harder to Achieve

The real challenge lies in the legal constraints of leasehold agreements. Many leases explicitly prohibit improvements from being charged as servicechargesorted.co.uk/blogs/service-charge-disputes-what-cam-be-disputed-how-and-the-role-of-the-first-role-tenancy-agreements-made-easy'>planetrent.co.uk/blog/could-a-tax-tribunal-ruling-mean-btl-investors-avoid-3-stamp-duty-surcharge'>tribunal'>service charges, meaning the cost of green technologies is not recoverable from leaseholders. If a dispute arises, a leaseholder who opposes paying for sustainability initiatives could take the case to a tenancy-agreements-made-easy'>planetrent.co.uk/blog/could-a-tax-tribunal-ruling-mean-btl-investors-avoid-3-stamp-duty-surcharge'>tribunal. Unless the lease includes strong clauses supporting improvements, they are likely to win the case, preventing any collective green investment.

Green Leases: A Potential Solution?

Despite these challenges, solutions are emerging. One promising approach is green leases, which:

• Include sustainability clauses in lease contracts.
• Align the interests of leaseholders and landlords to support Net Zero goals.
• Encourage energy-efficient behaviors and renewable energy adoption.