Energy efficiency challenges for letting commercial premises
Sponsored feature | Emma Roche, legal director, BDB Pitmans
With the built environment contributing to around 40 per cent of the UK’s total carbon footprint, it is no surprise that recent government policy on improving energy efficiency in non-domestic premises suggests that by 2030 there could be a complete ban on letting buildings with an energy performance certificate (EPC) rating of less than B.
It is estimated that less than 12 per cent of EPCs lodged in the last 10 years were given rating B or higher. Research also suggests than one in 10 city offices could be unusable by 2023 unless improvement works are carried out.
Landlords are currently unable to grant new lettings of commercial property with an EPC rating of F or G, subject to certain exemptions. By April 2023, landlords will be prohibited from continuing with an existing letting if it has rating F or G.
In the meantime, the debate continues between landlords and tenants about who will pay for improvements works. This will require fundamental changes to services including heating, air-conditioning, ventilation and lighting.
As the length of lease terms have shortened, it may be increasingly difficult for landlords to recover the cost of works through the service charge. Savvy tenants will be scrutinising service charge wording to ensure that energy efficiency improvements works are not included within the service costs or require absolute consent to such works.
Green lease provisions are now commonplace in commercial leases requiring parties to monitor energy consumption, ensure ambient conditions are maintained and set energy efficiency targets for both landlords and tenants. Whether this is enough to significantly improve energy consumption and EPC ratings is debatable.
Ultimately improvement works will be needed in the long term and should be put on the agenda now, as it looks like EPC rating B is set to be the goal for lettable buildings.
On the upside, with ESG firmly on the agenda for investor landlords and with market research showing up to a 10 per cent increase in rental yields for green buildings, this deadline is just another reason to commit to long lasting sustainable changes in the property sector.
Emma Roche is a legal director in BDB Pitmans’ commercial real estate team in Cambridge. Contact emmaroche@bdbpitmans.com or visit bdbpitmans.com.
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