Beware of the cold!
With less than 12 months to go until the Government’s Minimum Energy Efficiency Standards (MEES) are introduced, landlords and tenants have started to dust off their leases and consider the implications in respect of their commercial premises to avoid becoming an April Fool, as outlined in our earlier article here.
Come 1 April 2018, a landlord looking to let a property with an EPC rating below ‘E’ will either have to carry out any required energy efficiency improvement works to increase the EPC rating to ‘E’ or above or demonstrate and register an exemption in accordance with the MEES regulations. Either way, it will still be a tall order for some landlords to let such sub-standard properties whether it be because of the outlay to improve the energy rating, or because the landlord charges the tenant for the costs of improvements, either by a rental uplift or through a service change.
But what about those existing leases that benefit from security of tenure and are renewed after 1 April 2018, or whose term extends beyond the long stop implementation date of 1 April 2023?
Tenants occupying under protected tenancies will be relieved to know that any energy efficiency works required at the point of lease renewal will not automatically be included in the lease renewal terms. To include a new provision footing the tenant with the bill and/or responsibility for carrying out the works would mean that tenants would not be granted a lease on substantially the same terms as before. Landlords cannot simply refuse consent to a lease renewal on the basis that the property is sub-standard. Equally, tenants cannot use the lack of compliance on the part of a landlord to bring their lease to an end early.
Instead, and depending of course on the terms of the lease, the tenant may be required to complete the works itself pursuant to a statutory compliance obligation, and perhaps recover the costs of doing so from the landlord through a reduction in the rent. However, commentary has suggested that a statutory compliance clause is not sufficient to require MEES compliance.
Alternatively, to comply with MEES a landlord may have to carry out the energy efficiency improvement works if they do not qualify for an exemption and will not be able to recoup the outlay from the tenant.
Good news for the tenant you may say, but not so much for the landlord! The effect would mean that the value of the landlord’s interest in the property is reduced, to reflect the value of the works. Some commentators have suggested this would wipe £billions off the commercial value of property!
The regulations have also now been published so look out for our next article with some helpful updates.
If you would like clarification on this issue or advice from a member of the Property Team regarding its impact on your business, please contact Karin Horsley in the first instance by email at firstname.lastname@example.org or telephone on 01733 887650.Back to Our Thinking →