Overcoming the ‘tenant-owner dilemma’ to foster energy efficiency in residential private rented housing

Abstract

The Recast Energy Efficiency Directive 2023 has defined the concept of 'split incentive', also known as 'tenant-owner dilemma'. This dilemma refers to the situation where neither landlords nor tenants have incentives to invest in energy efficiency upgrades. Although the Energy Efficiency Directive calls Member States to remove legal barriers to remove split incentives and to encourage retrofits, the list of possible measures is too vague. This paper aims at discussing tenancy law measures designed to increase the energy efficiency of residential housing and to detect which Member States have already addressed this phenomenon. This paper analyses, from a civil legal perspective, the possible private law barriers arising from the tenant-owner dilemma when performing energy efficiency works in selected countries and proposes legal reforms in tenancy law and related policies to overcome them. To do so, this paper follows a legal-doghmatic and comparative law methodology. This paper concludes that some tenancy law provisions, such as the possibility to increase the rent after energy efficiency renovations and long-term leases, may challenge the tenant-owner dilemma in private rented markets, thus promoting renovations and retrofitting for energy efficiency purposes. It also proposes other policies intended to increase parties' willingness to undertake works. More research on the economic and legal efficiency to regulate some of the civil law measures to challenge the tenant-owner dilemma should be necessary. The civil law measures included in this paper may help national policy makers to meet the energy efficiency targets, according to what is established in the Recast Energy Efficiency Directive 2023. Based on the economic theory of the tenant-owner dilemma, this paper investigates the elements of tenancy law that may contribute to less energy-efficient homes, proposing policies for those countries interested in addressing the energy-efficiency challenge from a private law point of view.