Swathes of wildfires in Siberia, Africa, North America and Southern Europe. Landslides in Japan. Intense tropical storms in Florida and Haiti. Fatal flooding in Germany and Turkey. These are just a few of the extreme weather events of 2021 thought to have been caused by Global Climate Change according to scientists. As a result, there has been a call to arms around the globe demanding that governments begin to account for the extreme changes in the weather and introduce drastic policies before it is too late.
Plans are currently in place for the UK to achieve a 'Net Zero' emissions target by 2050. Within this target there has been a government consultation paper published in March of this year entitled 'Implementation of the EPC B Future Target'. Under this new proposal by 2030 only A or B rated commercial buildings will be able to be leased, whilst commercial properties will have had to have reached a provisional rating of a C by 2027. The government sees these commercially leased offices as a huge challenge to meeting the 'Net Zero' target as they emit one-third of all emissions from buildings in the UK.1
The changes required to many Commercial Property premises could cost a business a significant amount of money, leading to many offices becoming unusable particularly in London where two-thirds of Commercial Property premises are currently rated D to G according to the Financial Times2.
There is also potential concern over the Minimum Energy Efficiency Standards (MEES) regulations. The current regulations state a Landlord can enter a Premises to carry out energy efficiency improvements but only if the Tenant gives permission for the Landlord to do so. In this case, the Tenant is liable for the costs as it is they who benefit from the energy improvements.
However, if the Tenant were to refuse then the Landlord may be able to claim an exception under the MEES regulations, if the Landlord can prove the Tenant is refusing consent, to avoid paying for what the Landlord would have to pay for the improvements at the end of lease if they wished to re-let. In this instance, with the introduction of the 'EPC B Future Target', if a Landlord was to obtain an exemption, it would be lawful through the MEES regulations for the Landlord to continue to let the property despite it not reaching the B-rated EPC standard.
One thing is for certain is that in the years leading up to the 2030 compliance mark, these proposals will reveal which firms and companies are truly committed to their own carbon reduction targets.
- Will corporate companies who are Tenants in these commercial offices be prepared to pay Landlords for these changes or will they continue to be a stumbling block with regards to the MEES regulations and allow for the offices to continue to be leased as an exemption from the new EPC rules?
- If Tenants however are willing to pay for the improvements, will this cause the market rent to reduce?
It will become increasingly important for businesses to understand how climate change is going to impact their business. Landlords, investors and lenders need to move quickly to improve their properties. Whilst co-operation between Landlord and Tenants is going to be a crucial element, as we want to reduce our ecological impact as a society whilst allowing companies to continue working and operating in their current office spaces.
Footnotes
2. Office efficiency rules threaten to hit London commercial property market | Financial Times (ft.com)
Originally published 25 November 2021
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