Caution urged over sustainability clauses in lease agreements
Categories: NewsSian Wolstenholme, Commercial Property Solicitor at ORJ, explains why tenants must be cautious when signing leases with sustainability clauses.
Over recent months and years, I have seen a notable increase in sustainability provisions being drafted into commercial leases.
This can take a number of forms, but typically I see landlords asking tenants to enter into data sharing agreements over energy consumption and waste generation. Landlords may also request tenants participate in forums and only enter into contracts with ‘sustainable’ energy providers.
Additionally, clauses can be added requiring a tenant to operate building management systems correctly or obligations including how a tenant’s fitting out works must adhere to the energy efficiency standards of the building.
It’s clear why commercial landlords are putting tenants under increasing pressure around sustainability. In April 2023, new regulations came into force that state all new and existing lettings require an EPC rating of at least E – and this is due to be increased to a minimum of C in 2027 and B in 2030.
Since April 2018, it has been an offence for a landlord of a commercial property to sell or grant a new lease of a property which has a rating of F and G, so there has been a gradual movement towards the new standards introduced last year. Hefty fines – potentially 20% of the rateable value up to £150,000 for prolonged offending – or other enforcement action await landlords who flout the rules.
There are, however, some exemptions, including buildings used as places of worship, some industrial sites and workshops, properties with a total floor space under 50m2 and certain listed buildings.
This has led to landlords re-evaluating their buildings and how they will operate moving forward. It is right and understandable that tenants should play a role in ensuring buildings are performing within the allowed parameters, but I would urge people to be sure they know what they are signing up for -particularly if it is a short-term lease.
Complying with such obligations can be administratively burdensome and also costly. Ultimately, tenants will need to decide whether agreeing to sustainability clauses is good for them and their business, alongside regular terms and rent.
Regardless of the circumstances, we would always recommend talking to a commercial property solicitor before signing any lease agreement, regardless of length or value. One of the reasons for this is the importance of being aware of any penalties that might be incurred for failure to comply with terms.
At ORJ, we have decades of experience around commercial property and lease agreements. Do get in touch if we can help you move forward by emailing team@orj.co.uk or calling 01785 223440.