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Impact of Climate change on Property transactions
Shona Jones
Climate change is an undeniable global phenomenon with far-reaching consequences for our environment, economy, and society. While discussions often focus on its ecological and economic impacts, it is essential to recognise that climate change is also having a profound influence on property law. This article explores the potential impact of climate change in this context, highlighting the need for adaptation and innovation within the legal framework.
Biodiversity Net gain
In a bid to enhance environmental sustainability, the National Planning Policy Framework (NPPF) underscores the importance of biodiversity net gains in England’s planning landscape. Biodiversity encompasses the diverse array of life, including animals, plants, fungi and bacteria, interacting within ecosystems to sustain a delicate balance that provides essential resources such as food, clean water, medicine, and shelter for all living organisms. Local Planning Authorities follow a strategic hierarchy—aiming to avoid, mitigate, and, as a last resort, compensate for significant harm to biodiversity. The recent addition of Schedule 7A to the Town and Country Planning Act (TCPA) 1990, mandates a 10% biodiversity net gain requirement for all planning permissions granted in England from the 12 February 2024 except for those granted for small sites. The biodiversity net gain for small sites has an extended transition period and will apply from the 2nd of April 2024.
Small sites include the following:
- residential development where the number of dwellings is between 1 and 9, or if this is unknown, the site area is less than 0.5 hectares;
- commercial development where floor space created is less than 1,000 square metres or total site area is less than 1 hectare;
- development that is not the winning and working of minerals or the use of land for mineral-working deposits; and
- development that is not waste development.
These changes are intended to address the environmental impact of new developments. Developers will be obligated to demonstrate how they are improving biodiversity, with “biodiversity metric trading” rules. These rules dictate a “like for like” or “like for better” principle for any impacted habitat within the project boundaries. While on-site biodiversity improvements are encouraged, developers facing limitations can adopt a hybrid approach, combining on-site and off-site measures. This involves developers making off-site biodiversity gains on their own land outside the development site, or they can purchase “units” to pay for improvements on other off sites and private market. Crucially, these off-site gains must be maintained for a minimum of 30 years, ensuring a lasting positive impact on biodiversity beyond the immediate development site.
The Department of Environmental, Food and Rural Affairs, published an Environmental Improvement Plan on January 31, 2023 which outlines the government’s strategy for halting and reversing the decline in nature over the next five years. Their guidance note on May 2, 2023 provides insight to developers on what they can tally up for their biodiversity net gain. The guidance clarifies the potential inclusion of off-site mitigation, however, a minimum of 10% of the biodiversity net gain should be from on-site activities.
Flooding and Insurance
Extreme weather events, including floods, are becoming more frequent and severe in the UK due to the changing global climate. This can pose challenges for property owners in terms of insurance coverage and the rising cost of premiums. As properties in flood-prone areas become riskier to insure, owners may face higher costs or even the refusal of insurers to provide coverage for this risk. In response, changes are being considered in the UK insurance market in an attempt to accommodate these shifts in dynamics. New regulations and guidelines may be necessary to ensure that property owners are adequately protected against climate-related risks, while also fostering sustainable and resilient development practices and affordable policy premiums.
Market Values
In addition to impacting the property insurance market, areas that are prone to increasingly severe weather events can experience declines in property values, which can be due to costly (and often continuous) repairs needed to properties following weather damage.
Energy Efficiency
Investing in the operational costs of making properties energy efficient has become imperative, given that residential energy consumption contributes to 23 percent of the UK’s greenhouse gas emissions. As sustainability concerns and the desire to reduce utility bills continue to grow among tenants, incorporating eco-friendly features provides properties with a competitive edge. Window glazing, wall, floor and roof installation and energy efficient lighting are a few key operational costs likely involved in making properties energy efficient which not only align with environmental goals but also lowering energy costs.
It is worth noting that all privately rented domestic properties under an assured or regulated tenancy in the UK must possess a valid Energy Performance Certificate (EPC) rating of at least E. Moreover, the minimum required rating is set to be elevated to C by 2030. Without a valid EPC of E or above, a property cannot be legally let unless a valid exemption is in place. However, there is a financial cap on the required expenditures for energy efficiency improvements. Landlords will not be obligated to spend more than £3,500 (including VAT) on these improvements, ensuring a reasonable and regulated approach to fostering energy efficient lining spaces.
Radon
The impact of Radon from climate change should also be noted. Radon, a radioactive gas originating from rocks and soil across the UK, poses potential health risks when it accumulates indoors. Climate change has exacerbated the indoor accumulation of radon, by warming the artic which subsequently intensifies permafrost thaw. This thaw releases contaminants, microbes, and molecules, including radon. When released outdoors, radon disperses rapidly and is usually not a health issue, but when it’s released through building foundations—homes, schools, workplaces—can lead to trapped concentrations and poses serious health risks. Prolonged exposure to high radon levels, particularly for smokers and ex-smokers, is associated with an increased risk of lung cancer because radon emits tiny radioactive particles that when inhaled, can damage lung tissue over time. Addressing radon in homes involves costly remedial measures, underlines the urgency of robust climate action. For more information on remedial options, please visit the following link: https://www.ukradon.org/information/reducelevels
Property Transactions and Disclosures
Climate change is also influencing the way property transactions are conducted in the UK. Purchasers are becoming more concerned about the climate resilience of properties that they may acquire, which is leading to an increasing level of detail expected from Sellers in relation to the disclosure of climate-related risks and environmental hazards affecting the properties being transacted. In practice, this means that Sellers are needing to understand how climate change may be affecting their properties, in order to ensure that they are providing full disclosure to purchasers, in a way that has not been required before. Failure to do so could lead to legal disputes between the parties, post-completion. In response, UK property law is adapting to demand more comprehensive disclosures in property transactions and also provide guidance as to what this should look like.
Sea Levels Rising and Coastal Erosion
One of the most visible consequences of climate change is rising sea level and the increased risk of coastal erosion. Coastal property owners are witnessing their land gradually being claimed by the sea, leading to lengthy and costly disputes over property rights and boundaries. Questions also arise about whether property owners can continue to enjoy their land rights as climate change erodes coastlines. The UK government has been working on coastal management plans, such as shoreline protection schemes and managed retreat policies, to address these issues. According to the UK’s Environment Agency, over 7,000 properties in England are at risk of being lost to coastal erosion by 2100 due to sea-level rise and climate change. Property law must adapt to accommodate these changing circumstances, defining the rights and responsibilities of coastal property owners and also the government in mitigating erosion-related losses.
Conclusion
Climate change is not only a pressing environmental issue but also a significant driver of change in property law and practice. Coastal erosion, weather events, energy efficiency, and disclosure requirements are just a few examples of the challenges that property owners and the market are facing. The evolving relationship between climate change and property law underscores the importance of staying informed and proactive in addressing these complex issues in a changing world.#
Contact us
If you would like to discuss any of these issues above or if you are unsure how this may affect you, please get in touch with our property team.
Fergal O’Cleirigh (Head of Property)
fergal.ocleirigh@bermans.co.uk
0151 224 0543
Shona Jones (Article Author)
0151 224 0562