Law firm Eversheds has drafted guidance on how landlords can avoid falling foul of Minimum Energy Efficiency Standards (MEES). The new laws, which come into force in April 2018, will prevent landlords from leasing buildings with an energy efficiency rating lower than E.
Some estimates suggest as much as 20% of commercial building stock is F or G-rated. However, there are exemptions to the rules around cost effectiveness, third party consent and whether works to improve energy efficiency would damage or devalue the building. Industry standard model commercial lease provisions also now include provisions to deal with the MEES regulations.
According to Eversheds, these are:
- a right for the landlord to enter the premises to carry out energy efficiency improvement works, if the tenant in its absolute discretion consents (if the tenant doesn’t consent, the landlord can rely on the exemption);
- an obligation on the tenant to pay the costs of those energy efficiency improvement works (as it will be the tenant who benefits from energy savings);
- a prohibition on alterations that would otherwise be permitted if those alterations would adversely affect the environmental performance of the premises;
- restrictions on the tenant preventing it from obtaining an EPC unless it must do so by law (e.g. on assignment or underletting). This is to avoid the possibility that the EPC that the landlord holds for particular premises is replaced by a later EPC with a rating below an E;
- a rent review assumption that the premises may be lawfully let at the rent review date.
When dealing with lease renewals it may be best to settle for the provisions from the MCL which are middle ground between landlord and tenant.
From its work with clients so far, the law firm said it had seen a number of alternative lease provisions within drafted documents, including additional tenant covenants requiring them to carry out any MEES related works; agreements by landlords not to seek to recover MEES works costs from the tenant; and break clauses in the event that continuing to let the premises would constitute a breach of the MEES laws.
Eversheds advised landlords and tenants to waste no time in drafting new leases or amendments ahead of the new laws coming into force.
See the guidance note here.