Partner Article

Energy disputes will be taken to the letter

I can see an argument on the horizon between landlord and tenant. Well, there usually are arguments for one reason or another, but with the decision highly likely in the near future to effectively drop the rating of F and G out of Energy Performance Certificates (EPC) from 2018 I can see a plethora of disputes.

The rule will be simple. If a building achieves a rating of E or above it can be sold or let but if it is designated F or G it cannot. Whilst one might argue that this decision (once made) is about five years away from coming into effect, my experience is that matters will be left to the eleventh hour.

Over this time, I expect to see the poorer performing buildings being improved where this provides a good return on further capital invested, especially where there the chance of finding a tenant is likely to be improved.

I support EPCs, they tell at a glance how the building performs and help to compare the quality of one building with another. With the cost of energy increasing and occupiers now being conscious of annual operating costs of buildings, the EPC is becoming more important when a landlord seeks to let or sell.

If a landlord makes an investment to improve the rating of the building in EPC terms, the new rent on letting or sale price will have regard to those improvements. Where there is an existing tenant, the picture becomes less clear. The landlord may seek to improve the energy performance of the building through the service charge, thus at the tenant’s expense. An action you might think is unfair but I find that it happens. In such circumstances, the tenant who is aware of the service charge provisions and rules can raise an objection but not many tenants have the foresight to do so.

In another example, the tenant of an industrial unit might carry out production that results in changes to the building which in turn may reduce the performance of the building from a higher rating down to F or G.

Clearly, given the likely changes, this is a problem if the landlord aims to sell the investment – the attractiveness of the building will fade, at the very least. The landlord and managing agent must be alert to such situations and ensure they do not arise, or that there is provision for the building to be reinstated at the end of the lease and that marketing for sale is carefully addressed.

These are just two examples of how the EPC change will impact on property and landlord and tenant relationships. But the impact of change will continue to create differences.

Even today these arise through normal business activities. For example, taking office space to Grade A quality requires that the building services perform at today’s standards of Grade A. This may not be the case if the building was constructed, say, 10 years ago. Further investment and improvement will be required, merely for the property to remain competitive. Ideally, such arguments can be avoided and mature discussion between the parties and their advisors will find a solution.

This was posted in Bdaily's Members' News section by JK Property Consultants .