Forward planning for the new energy efficiency standards can’t hurt

Holidays are over, schools are back, but even so it’s still hard to get into gear with not even a Bank Holiday to look forward to between now and Christmas.

However, there is one issue I thought worth highlighting now – and highlighting two years before it will actually affect any of us.

Minimum Energy Efficiency Standards (MEES) are due to be introduced by Government legislation from 2018 (new leases including lease renewals) and from 2023 for all existing leases and it will have a major effect on the markets.

Essentially the commercial building EPC is graded from A-G (A being most efficient and G least). The Government’s aim is to improve energy efficiency over time and it’s anticipated that buildings falling within bands F&G will need to have fabric work updates in order to allow re-letting and ultimately re-sale.  It’s clear that it is older stock (particularly industrial premises) are going to be affected in the early days of this new legislation.

So, how will this impact property on lease renewal? Firstly this depends on whether the lease is protected under The L&T Act 1954 or not.  For those not protected, it’s likely that landlords will be able to incorporate new terms into any new lease, with costs passed onto the tenant.  In cases where the lease is protected, this is still very much a grey area as to how it will affect new leases going forward.

Ultimately changes to the core machinery of any protected existing lease can only be changed significantly where both parties agree.  The tenant is not under an obligation to accept such changes (which, in the case of MEES, would be significant increases in tenant liability). However, if the matter goes to court, it’s the court which would need to evaluate which terms should be incorporated.

Clearly we are still some distance away from when such factors are likely to arise (2018 onwards) but these are factors which are likely to lead to a fresh wave of new case law to test the boundaries of what can be considered essential and fair.  Landlords and occupiers alike should therefore prepare for potentially high costs and ongoing liabilities into the future, as the price of reducing CO2 emissions and improving building efficiency moves on.

As ever, if you need any advice just drop me a line but I would start thinking about this now when it comes to any leasing work you are planning as either landlord or tenant.


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