Should commercial landlords be passing the costs of the
Energy Certification process onto their tenants?
by Andrew Morley
03 April 2008
Watch out for increases in service charges, said to be the result of the implementation of the Energy Rating Certification process (part of the Energy Performance of Buildings Directive), due by April 2008.
While half the UK’s carbon emissions come from buildings, there is no reason for landlords or their managing agents to seek improvements at the tenant’s expense.
The new directive requires an energy performance certificate that uses a scale of A to G, familiar to most consumers. The certificate is to be made available to prospective buyers or tenants of commercial premises. It must include recommendations for the cost-effective improvement of the building’s energy performance.
The landlord must also carry out regular inspections of air conditioning and boiler systems.
However, a rating system and regular inspections alone will not improve energy efficiency. What building owners do as a result of receiving the certificate, recommendations and inspection reports, is what matters.
If the landlord decides to make alterations to the fabric or services of a building he may cite the new regulations. The landlord may then attempt to reclaim costs from existing tenants under the service charge since many leases require the landlord to maintain the building and its services to standards set out in government regulations. The landlord is unlikely to note that a by-product of such alterations is that the improved building may be more easily let and perhaps at a higher rent than before. The tenants will only find this out at the next rent review.
So what should tenants do to ensure that they do not end up paying twice for improving the building?
First, tenants should review their leases. What does the lease say about the landlord’s responsibilities? Does the landlord have the ability to recover the costs of improvements or replacements, whether or not they are cost-effective?
Second, tenants should request copies of the inspection reports and recommendations and seek advice as to whether what the landlord is proposing is reasonable or whether there are cheaper solutions.
CIBSE tables of life expectancy are often used to support the case for plant and machinery replacement. However, machinery can be maintained well beyond the life expectancy set out in such tables, and they are now only taken as a guide.
Significant energy savings can be made by reviewing the maintenance regime, hours of operation, local and main controls, energy tariffs and power factors, often leading to improved energy ratings.
The focus on green issues is an increasing consideration for landlords and tenants of commercial property. The Building Regulations is already having an impact on service charges and we have yet to see the real impact of the Energy Certification process, but it may bring into focus differences between the landlord’s and tenant’s aspirations – and who should bear the cost.
Andrew Morley is business development director at Property Solutions
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