Regulations could affect landlords and tenants of commercial property

Last year the Government consulted on its proposals to enforce a minimum energy requirement for commercial and residential lettings and in April 2015 issued a response to that consultation as well as draft regulations on the topic.  Although these regulations are not yet in force, the intention is that a minimum energy efficiency standard of E will apply to both residential and commercial properties.  The consequences for commercial landlords are that they will not be able to let out their property if the energy efficiency rating is F or G after the 1 April 2018.  Failure to comply with the new regulations will result in a large fine. 

Property owners are being encouraged to take action now rather than later so that they are well equipped to deal with the new regulations if they come into force.  Review your property portfolio and identify those properties with an E rating or below, then try to establish the main cause of why the property is rated so low.  Has the low rating been caused by a tenant alteration which the landlord can reasonably require to be reinstated at the end of the term of the lease?  Could the building be modified during a planned refurbishment or re- development to increase the energy efficiency?  An assessment should be made to see what improvements can be made to the building(s) to increase energy efficiency. The recommendations in the Energy Performance Certificate (“EPC”) should also be considered.

If improvements are to be carried out by the landlord then check the terms of the lease carefully to see if the cost of this can be recovered from the tenant.  You could budget for planned works over the period from now to April 2018.  Delaying could be costly for landlords as the costs of works to improve energy ratings will most likely increase in the run up to 2018.

If you are buying or investing in commercial property it is important that you ask to see the EPC, as sellers are now obligated to provide these.  You should review the EPC carefully, and if the certificate provides the property with a rating less than E then consider the impact this will have on future resale/letting.  It may be worth negotiating a price or rent adjustment to cover the costs of having to carry out energy improvement works in the future.

If you are a tenant about to complete a commercial lease of a property with a poor energy efficiency standard you should think carefully, as ultimately the new regulations could prohibit you from sub-letting any unused space after 1 April 2018.

So, if you own commercial property or you are thinking of acquiring or letting the same, waiting to see what happens may not be the best approach.  If the new regulations do come into force a lack of action now could be very costly in the future.

Daniel Sturman
01245 453811
[email protected]