Energy Services Agreement UK: ESA Guide for Landlords

What this document is

An Energy Services Agreement is a commercial contract between a property owner or occupier and a third-party provider, sometimes called an Energy Services Company or ESCO. The provider takes responsibility for designing, funding, installing and often operating energy-saving measures at the customer's site.

These measures might include lighting upgrades, heating and cooling improvements, insulation, building management systems, solar panels or combined heat and power units. The distinguishing feature of an ESA is the commercial structure: the customer does not usually buy the equipment outright.

Instead, they pay the provider over the life of the contract, with payments tied in some way to the energy savings the installation delivers. If the upgrades perform as promised, the customer's overall energy costs go down even after making the service payments.

If performance falls short, the contract usually sets out how the provider compensates the customer. ESAs sit within a wider family of performance contracts and are governed by general contract law in England and Wales, alongside sector-specific rules on energy, planning and health and safety.

How to use this document

1. Audit the site and set a baseline. Before any agreement can be drafted, the provider typically carries out a detailed energy audit of the property. This establishes how much energy the building currently uses, where the inefficiencies sit, and what measures would deliver the best return. The baseline figures matter enormously because every savings calculation later in the contract is measured against them.
2. Agree the scope of works and savings target. The parties then negotiate exactly what the provider will install, the expected performance of each measure, and the guaranteed level of savings. This is usually the most heavily negotiated part of the deal. Landlords should push for clear definitions, measurable outcomes and sensible tolerances, rather than vague promises of improvement that are hard to enforce later.
3. Settle the payment structure and term. ESAs can run for anywhere between five and twenty years depending on the scale of the investment. Payment may be a fixed monthly charge, a share of verified savings, or a hybrid. Longer terms usually bring lower payments but reduce flexibility, so it pays to think carefully about how the property might be used, leased or sold during the contract period.
4. Sign the contract and begin installation. Once terms are agreed, the parties execute the ESA and any related documents such as licences to access the premises, warranties on equipment and, where relevant, consents from lenders or superior landlords. The provider then schedules the installation, which needs to be coordinated around tenants and normal business operations to minimise disruption.
5. Measure, verify and manage the contract. After commissioning, the provider reports regularly on actual energy use and calculated savings against the baseline. Most ESAs use a measurement and verification protocol to keep the process objective. The customer should review these reports, raise any shortfalls promptly, and keep proper records in case performance guarantees or termination rights need to be invoked later on.