The Thrings Commercial Property team advised a tenant who was asked by their landlord to pay for works to bring the premises they occupied up to minimum energy efficiency standards.
The client had not sought legal advice before occupying commercial premises pursuant to the terms of a lease dated May 2021. The Energy Performance Certificate (EPC), which rates the energy efficiency of a building, expired while the tenant was in occupancy in June 2022.
The expired EPC gave a rating of F – but Minimum Energy Efficiency Standard regulations (MEES) have prohibited the granting of new leases of non-domestic property with F or G EPC ratings since April 2018, unless there is a legitimate reason to make an exception.
On the face of it, based on the information the client provided, the landlord was in breach of MEES when granting the lease. This did not invalidate the lease. but it did leave the landlord open to enforcement action from the local authority trading standards.
When the tenant approached Thrings, the landlord was requesting that the tenant pay for the cost of making the necessary improvements to the property to bring it up to the minimum energy threshold.
The provisions in the lease were unusual in that they suggested that where the landlord confirms that it does not hold a valid energy performance certificate (EPC) for the property, the landlord can elect that the tenant obtain an EPC at its own cost, or that the landlord could obtain an EPC at the tenant’s cost.
So, based on this clause, there was an argument that the landlord could have required the tenant to commission its own EPC.
A further clause in the lease stated that where a new EPC is obtained by the tenant which invalidates or materially adversely affects a valid EPC for the Property held by the landlord, the tenant will indemnify the landlord in respect of the cost of procuring a replacement EPC, and any loss suffered as a consequence of the tenant’s action.
The landlord was trying to claim on the above basis that it could require the tenant to commission an EPC, and where that EPC would reveal an energy rating below F, the landlord could require the tenant to indemnify it in respect of the loss suffered as a consequence of the tenant’s action. In this case that meant the landlord requesting that the tenant pay for the cost of improvement works to bring the property up to the minimum threshold.
The Thrings team advised the tenant that because the EPC had already expired in this case, even if the landlord required the tenant to procure one, it would not invalidate the existing EPC – because there was no valid EPC in place.
Advice for tenants – always check for a valid EPC and related clauses in a lease
The case has highlighted the importance of taking legal advice when negotiating a lease, and for the tenant to check that there is a valid EPC when a lease is granted to them, and that it is not below the minimum energy threshold.
When negotiating a lease on behalf of a tenant we would seek to ensure that the landlord could not oblige the tenant to pay for the cost of works to a property in order to bring it up to a minimum energy threshold (it is likely that the minimum energy threshold will increase over the next few years so even if the rating meets the threshold at the date of grant of the lease, this could change).
In addition, and perhaps a more common risk to tenants, is that a landlord can seek to recover the cost of improving a property for energy threshold purposes via the service charge where there is one.
When negotiating a lease we seek to exclude such costs from the service charge to ensure that a tenant does not end up paying for improvements to a property that they may not benefit from (particularly if they are occupying pursuant to the terms of a short term lease).
