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The Energy Act came into force in 2011 and new rules are now being introduced which require landlords to improve the energy efficiencies of their private rented properties as a key part of UK policy to reduce carbon emissions by 80% by 2050.
From April 2018, it will be unlawful for landlords to lease residential or commercial premises, where a minimum energy efficiency rating has not been achieved. Lenders, landlords and occupiers will therefore all be affected and the UK could see up to 20% of property stock impacted, either becoming impossible to let or occupy, or declining in value. The implications are significant and we are beginning to see an uptake in refurbishments and redevelopments of buildings that are at threat.
Also, From April 2016, private residential landlords will be unable to refuse a tenant’s reasonable request for energy improvements to be made to a property, where Government support such as the Green Deal or Energy Company Obligation is available to help pay for them.
Current discussion about the Energy Act legislation focuses specifically on the management of properties and, in particular, how legislation will be interpreted and will effect service charges.
Over recent years we have seen an increase in leases containing “green” clauses, stipulating better environmental management of a building. Works required to comply with the Energy Act may not, however, be covered by service charge provisions, as they are not considered to be repairs. Nevertheless, many commercial leases contain a “sweeper” service charge clause, entitling the landlord to recover the cost of providing such services and carrying out such works as deemed necessary in accordance with the principles of good estate management. Depending on the wording, there may be a case for suggesting that work carried out to improve the energy performance of a building falls within such a provision.
Resistance from tenants asked to pay for the work is to be expected on the grounds that it falls outside the lease terms and that they should not be held responsible for the cost of an outdated asset that does not meet regulation. Until case law precedents are set, we are likely to see considerable fall-out from this grey area of the law.
For example, if the property is rated below level ‘D’, it might be possible for a tenants to exercise a break clause and end the lease early, or at least to use this break as a mechanism to get the landlord to accept the liability for improvement work.
There is also likely to be an impact on dilapidations negotiations at the end of a lease. A tenant may have entered a lease which at the time had a ‘D’ rating, but which has been re-rated to an ‘E’ or an ‘F’ rating at the end of the lease. This may require the tenant to carry out additional work to bring the property up to an appropriate rating, depending on the wording of the original lease.
With less than two years before implementation of the 2018 deadline, and with such considerable ramifications, contracting parties need to consider the issues today and seek advice from professional Chartered Surveyors with experience in managing contracts, dilapidations assessments and supervising work carried out by energy assessors.
Click the following link to read the full 2110 Consult Fact Sheet: The Energy Act 2011 and its Affect on Landlord & Tenant Dilapidations Claims.
For more information speak to Justin Ansell on 01727 790906 or email firstname.lastname@example.org.