The energy efficiency of Britain’s buildings has been the subject of much criticism in recent years. In 2009 it was estimated that building’s accounted for about 43% of all the UK’s carbon emissions. The government has stated that we need to reduce carbon emissions from buildings.
To achieve this aim the government has already offered the carrot of the Green Deal, which offers loans to homeowners who wish to improve the energy efficiency of their property. However the Energy Act 2011 also contains a hefty stick that commercial landlords should be aware of.
Section 49 of the Energy Act places an obligation upon the secretary of state to make regulations preventing the owners of non-domestic property that fall below a certain level of energy efficiency from letting the property until the energy efficiency of the building has been improved.
Whilst no regulations have yet been made the Act requires them to be in force by 1 April 2018 at the latest. Early reports indicate that the regulations will prohibit the letting of non-domestic properties that fall below the E rating on the Energy Performance Certificate, a rating that may include up to 20% of the country’s commercial properties. This creates the possibility that landlord’s could be left holding properties that they are unable to let without significant investment in their energy efficiency. The Law Society Gazette has also raised other potential issues which include:
- Rent reviews, which may be affected by the energy efficiency of the property, both after 2018 and (if the lease will expire after 2018) before then.
- Depending on the wording of the regulations, leases may become void for illegality. If the tenant then remains in occupation paying rent, will a periodic tenancy be created? What impact will this have on security of tenure, registration at the Land Registry and the payment of SDLT? How will landlords’ mortgagees react?
- If landlords have to carry out works to the premises to re-let them following expiry of the existing lease, section 18 of the Landlord and Tenant Act 1927 may come into play.
- What effect will the regulations have on renewals under the Landlord and Tenant Act 1954?
Even though the regulations have yet to be introduced Landlord’s would be wise to check the energy efficiency of their buildings immediately and consider what actions they can take to improve their efficiency.
Tenants should also take care in checking the energy efficiency of any buildings they plan to rent. They should not assume that the costs will be born solely by the Landlord. The lease may contain a statutory compliance covenant, which could oblige them to carry out improvements so that the property complies with the regulations. Alternatively any Green Deal costs might fall within the charges that can be passed on to tenants.