Thursday, June 02, 2011

Breaking contract law?

This morning a small article on the Green Home loan that's being pushed by the government; a bit late as it was announced back in March last year! How does this scheme apparently work?

Well it appears some minor modifications have taken place since it was announced. A home owner takes out a loan for up to £10k from a private company (not the government) and 'green' their house. The loan is paid back over 20/25 years (sources differ) through garnishing of the energy bills. The theory is that through the added efficiency you save, say, £100/period through using lower amounts of energy and the bill has a £100/period surcharge to pay off the loan. Yeah that sounds tempting - I get to pay exactly the same amount of money, but hey I'm doing my bit for the environment and in theory it should boost the value of my property.

And that's where the title I've given this entry comes from - what happens if you move? In every circumstance the loan taken out is tied to the person who took it out because it's a civil contract and you can only make civil contracts with people. This is why we have the legal fiction of businesses being able to classify itself as a person just so as to make contracts legal (as well as diminish the financial responsibility of the owners)

But in this green loan the repayments are being done via the energy bills. So I take out this loan; and pay the same bill amount; then move house. Do I still pay the same amount in my new house - what it it's less efficient; what if it's more? Amazingly the government has spotted and tried to solve this problem by linking the loan to the property.

Great! Except remember what I just said about contracts being only valid between people.The way out of this is that the original owner is responsible for the debt then upon selling the property the new owner takes legal responsibility for repayments. The contracts remain between people. Therefore a condition of sale on the property is to take on the debt.

This way Company A loans money to Person 1 (who is expected to pay it back), but then Person 2 takes on that responsibility and Person 1 pays nothing more. So if this is the case why the need to specify that the loan links to the property. If Person 1 sells the property, but doesn't get Person 2 to take on the debt it's still owed by Person 1; that's the law.

As such there's no need to change contract law to link the loan to the property; it's up to the seller to get the buyer to take on the debt. If they don't they still owe the money.