This story was originally published by the Energy Mix on September 8th, 2022.
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When it comes to getting landlords to retrofit the buildings responsible for up to 18% of Canada’s greenhouse gas emissions, bad incentives are leading to bad outcomes.
That’s because the main reason for landlords to incur the cost and effort of a retrofit, aside from genuine climate concern, is to lower energy bills. But landlords often aren’t responsible for paying those bills. Tenants are, in both residential and commercial properties.
Residential landlords can offload utility costs to renters who won’t even ask about them before signing a lease in Canada’s scorching residential rental market. That gives landlords little incentive to upgrade their buildings’ primary source of emissions: the heating system.
A homeowner paying those bills each month can factor in the long-term savings associated with a more efficient heating system, such as a heat pump. But a landlord only pays the system’s up-front sticker price. Ongoing energy bills, rising due to geopolitical tensions, the national carbon price, and various other factors, are the tenant’s problem. It’s in the landlord’s interest to buy the cheapest system, even if it uses the most and costliest energy.
Commercial tenants are often saddled with double- or triple-“net” leases that make them responsible for all or a significant portion of utility costs, and even heating system repair and replacement. In some cases, it can make sense for commercial tenants to invest in more efficient systems. But only if they know they’ll be around long enough to reap the savings.
And even then, if a tenant spends a large sum on a more efficient system, the landlord benefits most of all. The lease is only for a limited time, and tenants don’t take the system with them when they leave.
In the end, the tenant is paying for an upgrade that increases the leased property’s overall value. That increased property value could even lead the landlord to raise the rent on an energy-optimized property that is now more attractive to other commercial tenants.
Governments therefore can and should introduce a mix of “carrot” and “stick” policies to realign landlords’ incentives toward decarbonization.
To start, the federal government could pass legislation offering more financial incentives for landlords and tenants.
The federal Greener Homes Initiative offers homeowners up to $5,000 for eligible green upgrades to a primary residence, with improved insulation, heat pumps, and solar panels all on the menu. However, there’s no equivalent federal program for tenants or landlords to make similar improvements to a rented home or commercial property. But why not?
Then again, given the greater value of a dollar today than a dollar tomorrow, why should a landlord even bother replacing old, inefficient equipment until it absolutely has to go, even if a rebate or grant makes immediate replacement less expensive?
That’s where a generous but time-limited tax credit could serve as motivation.
Laying claim to proper jurisdiction over landlord and tenant matters, provincial governments could also impose certain requirements on landlords. They could begin by mandating energy efficiency upgrades where old, inefficient systems and infrastructure are burdening tenants with excessive energy costs. In which case, decarbonization policy could double as housing policy that aims to ease the pain of Canada’s long-suffering renters.
New incentives, laws, and policies that encourage landlords to retrofit their properties would also boost the demand for knowledgeable contractors to carry out the retrofits. But, as anyone who’s tried finding someone to fix a roof in summer knows, Canada’s tradespeople are already in short supply. Contractors who know and are comfortable working with new technologies, like heat pumps, are in particularly high demand.
So government incentives should be implemented in coordination with just transition policies and innovative industry programs intended to prepare Canada’s labour force to participate in the green economy.
Those policies and hands-on strategies are all essential to training the army of tradespeople that will be needed to retrofit every building in the country and upgrade electrical systems.
And, ideally, fix roofs in summer.
Please contact our firm at 647-725-4308 or info@greeneconomylaw.com for legal assistance in connection with sustainable property, energy efficiency, or housing-related legal matters.