The ongoing energy crisis has prompted many businesses to focus on improving the energy efficiency of their buildings to achieve cost savings.
These property improvements vary greatly in size and scope, and may include simple solutions like:
- energy efficient lighting and equipment,
- improvements to insulation and heating and,
- cooling systems,
Other examples may also include energy generation by means of the installation of solar panels and batteries, and in some circumstances, wind turbines.
In relation to commercial property that is owned by an occupying business, it can be straightforward from a legal perspective to deal with these improvements. However, from a tenant’s perspective, there are several issues to consider before embarking on such a costly and protracted project.
A tenant must always consider
- the overall investment costs of the improvement, versus the benefit of lower energy costs in the long run, as well as,
- the short term against impact of this cost, versus the cost of installation.
We often fine that this is especially the case if the tenant only has a relatively short-term interest in the property.
In contrast, the longer the tenants enjoy the interest, the less benefit a landlord may see in any such improvements. From our experience, this is because many landlords will consider there to be no immediate benefit to them, as any improvements in energy efficiency will only benefit the tenant in the short term.
To further complicate matters, many leases will not contain specific provisions relating to the environmental performance of a building over and above the compliance with the regulations on EPC’s. Even the leases that do attempt to cover such issues are currently mostly focused on the voluntary cooperation of the parties to work to towards a desired outcome, but unfortunately, do not contain binding provisions.
Minimum Energy Efficiency Standards (MEES)
There may however be some assistance in the form of the Minimum Energy Efficiency Standards (MEES). By now most owners and occupiers of commercial property will be broadly familiar with MEES, but it is worth reminding people that the minimum requirement of an Energy Performance Certificate ‘E’ rating will apply to existing commercial leases from 1 April 2023, whereas previously this minimum requirement applied only where ne leases were being granted.
Importantly landlords need to keep in mind that they are liable for the penalties for non-compliance. Therefore, the Tenants with Renewable or Efficiency Energy projects for their property, may well find that landlords are more receptive to such proposals than they may have been in the past.
Summary
The issue surrounding the environmental performance of buildings is not going to go away, and I think most commentators would agree that the minimum standard required by the regulations is only likely to increase over time.
Early engagement between the parties will be the key to ensuring that any measures taken comply with the lease terms, or where they do not to, the partis must ensure that suitable variations of the lease are undertaken as well as ensuring that any required consents are dealt with prior the commencement of any project.
For more information contact Mike Stoney on 01482 974484 or mike.stoney@jameslegal.co.uk
