Energy efficiency ratings
From 1 April 2018, property owners will be prohibited from granting new tenancies of properties with an EPC rating of below E unless an exemption applies. Although the grant of a lease with a lower rating now would not be in breach of MEES (minimum energy efficiency standards) from 1 April 2023, it will be unlawful to continue to let a property with an EPC rating of below E unless an exemption applies. The landlord will be in breach for each day that the letting continues.
This April 2018 deadline is fast approaching. It is not just the prohibition on letting that will be an issue for property owners. Properties with low EPC ratings will attract lower rents than those with ratings of E or above. Lenders may also refuse to lend in relation to properties with low EPC ratings.
Tenants should be aware that if a landlord is looking to carry out energy efficiency improvements such as improving insulation, or fitting rooftop solar PV panels they will need to consider the following:
- Whether the landlord has appropriate access rights. Leases generally do not reserve a right to the landlord to enter to carry out improvement works so any access would have to be agreed by the tenants.
Tenants may be reluctant to let the landlord enter to carry out works as this is likely to cause interruption to the tenant’s business. This is more likely to be the case if the tenant only has a fairly short term interest and does not anticipate that it will benefit from the works being undertaken.
The landlord may wish to undertake negotiations with the tenant to enable it to carry out the works if it can, for example, offer the tenant alternative office space and a rent-free period.
- Who is going to pay for the works?
- If the landlord intends to install solar panels on the roof, who is going to pay the installation costs? From a tenant’s point of view it will be important to understand if these costs will be recovered via the service charge and if they will get the electricity generated free of charge. Additional considerations include whether any surplus sold to the grid will be credited to the service charge account and whether the landlord is going to lease the airspace to a solar panel provider.
- Will the carrying out of the works interrupt the tenant’s right to quiet enjoyment under the lease?
Whether it is the approach of the April 2018 deadline, or a desire to improve the corporate and social responsibility of an organisation, various matters need to be investigated before a landlord can carry out energy efficiency improvements to its building stock.
Mark Routley, property litigation partner, TLT
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