Dear Claire – Winter 2018

10 / 01 / 2018

Perplexed by property law? Relax, Solicitor Claire Haynes is here to answer your most pressing questions…

Q: I work for a small charity which has a lease of a building that the charity uses for its head office. The charity sub-lets several floors of the building to other occupiers as it no longer needs the space and this generates extra income for the charity. I have heard that from 2018 the charity will no longer be able to sublet the extra space unless it complies with energy efficiency performance criteria. The building is old and I doubt it complies with the required standards. Should I be concerned?

A: You have good reason to be concerned about the new standards. They are set out in the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 and there are two key dates to note for a landlord of commercial premises:

  • from 1 April 2018 a landlord must ensure a property meets minimum energy efficiency standards before granting a new lease or extending or renewing an existing one;
  • from 1 April 2023 a landlord must not continue to let a property which falls below the required minimum energy efficiency standards.

The charity would fall into the category of landlord in relation to the floors that it sub-lets.
The minimum standard is an EPC rating of band E. EPC ratings below band E (band F or G) are deemed sub-standard and fall foul of the Regulations unless an exemption applies and has been registered on a government register. The exemption lasts for five years and allows a landlord to let or continue to let a property not meeting the required band E standard of energy efficiency.

The exemptions which are most likely to apply in your circumstances are:

  • the works are not cost effective as they do not achieve a payback of capital costs within a seven year payback period; or
  • despite using reasonable efforts it has not been possible to obtain necessary third party consents to the required energy efficiency improvement works.An example would be where your sub-tenant will not permit access to the premises to enable you to carry out the works.

Exemptions are made on a self-certification basis and if they do apply, they will need to be registered before 1 April 2018. As landlord if you pay for works to be carried out there is the possibility of recovering the cost of the works from the tenant if the lease permits this. However an existing lease is unlikely to do so.
Local trading standards teams will be responsible for enforcing the Regulations. They will be empowered to levy steep financial penalties for non-compliance and to name the parties on a public register.

The new rules on energy efficiency run alongside the usual laws which apply when a charity disposes of land. The charity must continue to try and get the best deal it can; the lease must be in the best interests of the charity; and the charity should take written advice from a surveyor in the normal way before granting the lease.

This is a complicated and emerging area of law on which I recommend you seek further detailed legal advice.