Commercial property tenants under environmental pressure

07 November 2022

Commercial landlords are putting tenants under increasing pressure to ensure they are promoting sustainability and being more energy efficient, writes Aman Sahota-Dhatt, Principal Associate in the Higgs LLP Property team.

Commercial property landlords are not only trying to keep the bills down but, with changes in regulations, they are also feeling the pressure to keep up with the drive to be energy efficient.

From April 2023 all new and existing commercial lettings will need an EPC rating of at least E, and this requirement is due to be increased to a minimum of C in 2027 and B in 2030. Landlords are therefore constantly needing to evaluate the nature of their buildings.

But what does this emphasis on energy efficiency mean in practice for tenants?

Over recent months there has been an increase in robust provisions being drafted into commercial leases placing greater responsibility onto tenants to act both independently and collaboratively to improve sustainability in the properties and buildings that they occupy.  

Data sharing, participation in forums and only contracting with ‘sustainable’ energy providers are all obligations that we are seeing creep into draft documentation.

Tenants of even relatively short-term leases are being required to comply with these additional obligations, which aren’t only administratively burdensome but also potentially costly.

Tenants need to be alive to these energy performance obligations and what they might mean for them in practice.  Whether it be a requirement to provide energy performance data; needing to comply with reasonable regulations that the landlord chooses to impose; or service charge provisions including the landlord’s own performance management costs, it’s important that tenants understand the practical and financial consequence these provisions might have.

Ultimately, with these types of demands on tenants ever increasing and additional costs being added to service charge provisions, tenants will need to reflect on the consequences of signing up to these provisions and consider whether in light of the term, rent and property these additional obligations seem reasonable.

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