Climate risk in property transactions: Why it matters and how to respond
Climate change is reshaping the property market. Increasingly frequent flooding, storms, heatwaves, and coastal erosion are already affecting properties across the UK. The Environment Agency estimates that one in four properties in England could face flood risk by 2050.
These risks go beyond environmental concerns: they create significant legal, financial, and operational challenges for investors, developers, and occupiers. The Law Society now advises solicitors to treat climate risk as a core element of due diligence in property transactions.
The three key types of climate risk
- Physical risks - the direct impacts such as flooding, erosion, ground instability, and heat stress. These can make properties unsafe, expensive to maintain, or less attractive to buyers and tenants.
- Transition risks - financial and reputational risks for businesses. The drive toward the UK’s 2050 net-zero target has led to stricter Minimum Energy Efficiency Standards and the forthcoming Future Homes and Buildings Standards. Properties that fall short may face redevelopment barriers, higher running costs, and reduced investment appeal.
- Liability risks - the legal and financial responsibilities. Owners may face legal obligations to upgrade buildings or mitigate risks. Failure to comply could result in enforcement action, financial penalties, and reputational harm.
Why climate risk should be a priority
Impact on use and value:
Over time, properties in high-risk areas may no longer be fit for their intended residential or commercial use. Flood risk, heat stress, or ground instability could significantly reduce their functionality and value.
Rising operating costs and insurance challenges:
Insuring properties exposed to climate risks is becoming more difficult and expensive. Premiums are increasing and insurers may demand additional protective measures. Energy efficiency upgrades are also becoming essential. Failure to make improvements may result in regulatory breaches, reduced tenant interest, refinancing difficulties, and overall devaluation.
Development constraints:
Properties located in environmentally sensitive areas may face planning delays, refusals, or be subject to expensive mitigation requirements. Engaging early with planning authorities can help manage these challenges.
Mitigating climate risks:
Commission a climate risk assessment
Desktop climate reports and government data, such as Environment Agency flood maps, provide a useful overview of local and long-term risks. For more tailored insight, specialist environmental surveys can offer detailed analysis and guidance. While we are not qualified to interpret these reports, we work with trusted consultants who can.
When deciding whether to commission a search, it is useful to consider:
- How long you plan to own or occupy the property
- Intended use and potential tenant demand
- Lender requirements
- Insurance availability and affordability
- Costs of future-proofing.
Incorporate climate risk provisions into legal documents
We ensure contracts and leases address how climate risks will be managed. This may include:
- Allocation of costs for retrofitting or energy upgrades
- Sharing of environmental data between parties
- Clauses dealing with the consequences of climate events, such as loss of insurance or change of use
- Service charge provisions covering climate-related expenses.
Embed sustainability into future development plans
Where refurbishment or construction is planned, we recommend design teams:
- Consider relevant environmental risks
- Exceed current minimum energy and resilience standards to future proof against future changes
- Invest in sustainable design to attract tenants and reduce long-term costs.
Green leases and sustainability
As a landlord or tenant, you may consider embedding sustainability into the lease by including green provisions. Green lease provisions aim to improve the environmental performance of properties and focus both landlord and occupiers on their environmental impact. Green lease provisions are varied but may include measuring and reporting on energy consumption, waste generation and transport. If this is something you would like to discuss or include within a lease then VWV would be happy to advise you accordingly.
Conclusion
Climate change is reshaping the property market, affecting insurability, operating costs and development potential. Climate risk assessments and legal due diligence are now essential to protect value and ensure resilience. Engaging early with legal, planning, and environmental experts can help safeguard your investment, meet future regulatory standards, and make the most of opportunities in a market that increasingly values sustainability.
At VWV, we are here to guide you through every stage of the process, ensuring that your property decisions are informed, compliant, and future-ready. Please contact Ruth Glinister, Gemma Williams or Harriet Lander if you have any questions.