Owning commercial property can be a significant investment for both companies and individuals. However, its value is only as secure as the lease which can be granted and compliance by the landlord with its statutory duties. For a commercial landlord your goal may be to maximise income and transfer liability.
There are two ways in which you can achieve maximum income and the transfer of liability. A well drafted lease will provide you with terms which will transfer liability to the tenant, however, there will always remain statutory obligations which must be complied with by the landlord.
Whilst liability regarding repair and maintenance of the property being demised to the tenant and the health and safety of employees falls to the tenant; landlords continue to remain responsible for the safety and energy of the property being demised. The safety of the structure and the common parts including car parking areas and staircases remain the responsibility of the landlord. Furthermore, the landlord continues to be responsible for the energy efficiency of the property.
The Minimum Energy Efficiency Standards (MEES) is currently one of the most critical statutory obligations which landlords must comply with. Failure to comply with the MEES requirements can result in significant financial penalties and reputational damage, and as such it is important that all landlords ensure they are complying with the most up to date guidelines.
Currently, landlords are prohibited from letting commercial property with a minimum energy performance rating of ‘E’ ‘F’ or ‘G’, this includes where leases have already been granted. This is due to be changed to a minimum rating of ‘D’ during 2025, ‘C’ by 2030 and ‘B’ by 2035. Although the changes have not yet come into force for 2025, we are expecting to hear from the Government in due course as to when this is likely to come into effect. It is therefore important that landlords take measures now to ensure that they will continue to be complying with the MEES requirements throughout the duration of the lease. Changes are likely to come into force during any period of a lease, and so landlords need to be proactive.
There are exemptions to the above which landlords can apply, including where a property is classed as a Listed Building and any improvements are not permitted due to its listing, car parks and kiosks under 50m2, however, if a landlord has voluntarily sought an Energy Performance Certificate, the landlord is automatically subject to the MEES requirements and failure to comply will result in financial penalties. Landlords can also apply to have the property exempt from the MEES requirements, if for example the cost of any such improvements would not see a return over a seven year period, or if a surveyor considers that improvements such as cavity wall insulation would damage the property, then the Local Authority may confirm that the property is exempt from the MEES requirements.
Whilst there are several options to include in your lease to maximise earnings from your property, such as full repairing and insuring leases, upwards only rent reviews, robust service charge mechanisms, as a landlord you will still be required to provide a property which can be let to the tenant suitable for their permitted use. Therefore, it is essential that you ensure that you comply with the MEES requirements, and where necessary the costs of any upgrades to comply with such requirements can be offset with other costs in the lease, including provisions added to the service charge costs, or a specific sustainability clause to be agreed between landlord and tenant. Afterall, the energy efficiency of a property benefits both the landlord and the tenant.
In advance of further changes coming into force by the Government at any time, it is essential that landlords act now to ensure compliance, and consider leases are drafted to incorporate such compliance now.
If you are considering a lease renewal or a new lease to a new tenant or an existing tenant, please do get in contact with us to see how we can assist and support you with your lease drafting to ensure compliance with MEES.
