Property Law and Climate Change

Contents

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    Executive Summary

    Buildings and land are significant sources of greenhouse gas emissions and also integral to ensuring that humanity can adapt to climate change impacts. People and organisations that own, rent, and manage land will play a key role in the net zero transition. Property and real estate law are therefore closely linked to climate change. Physical climate impacts can influence real estate values and climate change policies, such as decarbonising buildings in the UK, are important considerations in real estate transactions. Broader climate policies, such as new environmental regulations, are also relevant to property law. Actors in the real estate sector have the ability to drive decarbonisation through green leases and mortgages and may also take advantage of new statutory mechanisms such as conservation covenants.

    • Climate change’s physical impacts will have significant effect on UK properties, as will policies aimed at reducing emissions from buildings. These factors can therefore influence real estate values.
    • Lawyers and conveyancers advising on property transactions may need to consider climate change risks in order to fulfil their legal duties to their clients.
    • Green leases can give landlord and tenants greater incentives to take climate action, while green mortgages aim to make low-carbon properties more attractive. 
    • Conservation covenants, established under the Environment Act 2021, may give legal force to climate commitments from landowners.

    How climate change is impacting property law

    Climate change risks and real property

    Transition risks, those caused by society’s response to climate change, may also be relevant to property lawyers where government policies and private sector initiatives seek to prepare for physical climate risks via adaptation and resilience measures. Buildings and land use are also key sources of emissions, which has led to other policies that target emissions from property. These policies have led to new legal issues, some of which are addressed below.

    Decarbonising buildings

    The UK’s built environment is responsible for about one quarter of the country’s greenhouse gas emissions.[3] While greenhouse gas emissions from activities such as power generation have fallen significantly over the past decades, there has been a much slower decrease in emissions from buildings.[4] Emissions from buildings can be broadly classed as operational, meaning the emissions caused by ongoing activities such as lighting and heating, or as ‘embodied’ carbon, which refers to emissions originating from the materials and processes used in construction. Reducing emissions from buildings involves both ensuring that new builds use low-carbon materials and that existing buildings are ‘retrofitted’ to become less greenhouse gas-intensive.

    To achieve these reductions, in 2021 the UK government set out its Heat and Buildings Strategy. The strategy, which has faced some criticism, includes incentives for homeowners to replace their gas boilers with low-carbon heating options such as electric heat pumps. The strategy mentions an ambition to ban the sale of new gas boilers by 2035. Other regulations that impact property owners and developers include the requirement that new homes with on-site parking have an electric vehicle charging point to incentivize the switch from gas to electric vehicles.

    The Heat and Buildings Strategy indicated that mortgage lenders may need to disclose the energy efficiency ratings of property for which they lend money and set targets to increase efficiency ratings across their portfolio. Landlords already have obligations not to grant new commercial leases for buildings with an EPC rating below E, and since April 2023 landlords are unable to continue existing leases for such buildings. The latter rule has applied to residential leases since 2020.

    Planning and environmental regulations

    Environmental regulations with links to climate change may impact real estate. The Environment Act 2021, which created a post-Brexit framework for environmental policy in the UK, created a ‘biodiversity net gain’ requirement.[5] This requires that certain developers demonstrate how their plans will increase biodiversity by 10%, or otherwise purchase ‘biodiversity credits’[6] to reach this goal. Many details of these requirements are yet to be finalised, but these biodiversity rules will be important to property developers. Developers will need to undertake a biodiversity assessment prior to submitting a planning application and will need to integrate biodiversity into the design of the development. While biodiversity loss is a separate environmental issue to climate change, the two issues and the efforts taken to address them are linked, as biodiversity is linked to an area’s resiliency to climate change.

    Climate change is also a factor in planning, as planning decisions now often must weigh climate risks and opportunities against other interests, such as heritage. The planning law section of this resource outlines some of these issues in detail, which may be highly important to developers and others in the real estate sector.

    Climate change risks and conveyancing

    As outlined above, climate change creates and accelerates risks that threaten property, so it is important that buyers are aware of how these risks may impact the value and nature of the relevant land. This has raised questions about which professionals should be bringing these risks to the attention of buyers, and whether there are any legal obligations to advise on climate risks in property transactions. While no lawyer has been found negligent for failing to advise on climate risks associated with property transactions to date, there is some interest in the extent to which conveyancers have a duty to advise their clients on climate change risk. This duty would vary depending on the client – conveyancers may have a stronger obligation to explain climate-related risks to residential buyers than they have towards sophisticated commercial clients. This aligns with broader suggestions that all solicitors may have a duty to advise on relevant climate risks. Industry surveys reveal mixed views about whether conveyancers should or do have a duty to advise on climate risk, with some suggesting that the onus should largely sit with lenders. In any case, climate change risks are now a relevant factor in property transactions and coordination between conveyancers, lenders and surveyors may help to address these risks. Groundsure’s ClimateIndex is a tool to help lawyers understand climate risk in property transactions.

    How property law can help to drive the net zero transition          

    Green leases

    Green leases are leases which include provisions that aim to enhance the sustainability of the relevant property. This may be through clauses within the lease itself, or through obligations elsewhere such as tenant regulations or an environmental handbook.[7] Memoranda of understanding are not legally enforceable but may also help landlords and tenants set out their obligations with regards to sustainability.

    As landlords do not tend to pay for the energy consumed on their property, they often do not have a financial incentive to reduce energy consumption or to utilise renewable energy sources. Conversely, tenants do tend to reap financial benefits from energy efficiency and low-carbon electricity, but generally do not have control over constructing, replacing, and maintaining relevant amenities on the property. Green leases aim to address this issue and set the terms on which owners and tenants cooperate on climate change, for example by including obligations to improve energy efficiency or maintain low-carbon facilities. Given the government’s intention to enforce minimum energy efficiency standards, green leases also help landlords and tenants comply with statutory obligations. The Better Building Partnership has a Green Lease Toolkit which gives recommendations and model clauses aimed at landlords and commercial tenants. The Chancery Lane Project’s real estate clauses include examples of both commercial and residential climate-related provisions that can be put into leases. Other clauses, for example requiring the sustainable management of soil, may also be relevant.

    Green mortgages

    Green mortgages aim to incentivise the purchase of sustainable properties. Lenders may offer preferential rates or cashback to buyers purchasing an energy-efficient building, or who agree to retrofit the building to make it more sustainable. This makes low-carbon properties more attractive to buyers. Green mortgages also benefit lenders as higher values and lower operational costs associated with green homes can reduce the probability of default. Many lenders now offer green mortgages, which may be complemented by statutory incentives available to owners and landlords such as the Green Homes Grant scheme.

    Conservation covenants

    Conservation covenants are agreements introduced under the Environment Act 2021 to use, or not use, property for a specific purpose in order to conserve natural resources or cultural assets.[8] They may help secure funding for conservation activities or to sustain conservation activities through changes in land ownership. As explored in the environmental law section of this resource, many activities which protect the environment may also help to address the climate crisis. Landowners (who either have freehold title to the land or who have a leasehold with over seven years remaining) can enter into these agreements, which must be executed as deeds with ‘responsible bodies.’[9] Responsible bodies may be local authorities, public bodies which have some purpose or function related to conservation, or private sector organisations that relate to conservation. Organisations will need to apply to be responsible bodies and have numerous responsibilities, including ensuring that landowners understand the implications of entering into a conservation covenant, and monitoring the fulfilment of the covenant. While conservation covenants may help achieve any environmental goal, climate change burdens are a more targeted mechanism in Scottish property law that provide a way of requiring specific mitigation or adaptation standards.


    [1] Dye & Durham, ‘The Climate Report’ (2022). https://dyedurham.co.uk/solution/the-climate-report/.

    [2] Department for Environment, Food & Rural Affairs, Government sets out adaptation programme to tackle climate impact, 17 July 2023. https://www.gov.uk/government/news/government-sets-out-adaptation-programme-to-tackle-climate-impact.

    [3] House of Commons Environmental Audit Committee, ‘Building to Net Zero: Costing Carbon in Construction’ (House of Commons, 11 May 2022).

    [4] Department of Business, Energy and Industrial Strategy, ‘Heat and Buildings Strategy’ (2023), Figure 3. HM Government – Heat and Buildings Strategy (publishing.service.gov.uk).

    [5] Environment Act 2021, s 98.

    [6] Ibid. S 101.

    [7] Johanna Little, ‘What Is a Green Lease?’ (Loosemores, 25 November 2021). <https://www.loosemores.co.uk/what-is-a-green-lease/>.

    [8] Environment Act 2021, s 117.

    [9] Ibid, s 119.