Green lease law and regulation in the United Kingdom

The main requirements relating to energy efficiency are now contained within the building regulations regime for new developments or alterations to buildings. The relevant local authorities would seek to ensure some energy efficiency measures through the approval process for building works. The legislative detail is set out below:

ENGLAND & WALES
Governing Regulations for energy efficiency are the Building Regulations (as amended) 2000, Part L.
Advice is also issued by central government (Department of Communities and Local Government) in four Approved Documents under Part L, split into four categories of building: new dwellings; existing dwellings; new non-domestic buildings; existing non-domestic buildings. The current versions of “Approved Document L” are:

• Approved Document L1A: Conservation of fuel and power (New Dwellings) (2010 edition).
• Approved Document L1B: Conservation of fuel and power (Existing Dwellings) (2010 edition).
• Approved Document L2A: Conservation of fuel and power (New buildings other than dwellings) (2010 edition).
• Approved Document L2B: Conservation of fuel and power (Existing buildings other than dwellings) (2010 edition).

In some areas, there may also be policies which require improvements that cut energy and emissions beyond the statutory minimum standard. Examples of these are the Code for Sustainable Homes, Ecohomes and local policies.

SCOTLAND
Governing Regulations are the Building (Scotland) Regulations 2004.
A set of Technical Handbooks is published by the Scottish Building Standards Agency. These provide guidance on how to comply with the Building (Scotland) Regulations 2004.
Energy Efficiency is covered in Technical Handbook 6 (2009).

NORTHERN IRELAND
Governing Regulations are the Building Regulations (Northern Ireland) 2000.
In Northern Ireland, the Department of Finance and Personnel publishes technical guidance for complying with the Building Regulations (Northern Ireland) 2000. Guidance on energy matters is in Technical Booklet F.

Further Government incentives are through the energy performance certificates regime under which on any sale or letting of any building (residential or commercial) an energy performance certificate together with a recommendation report is required to be provided by the seller/landlord. This sets out an energy rating for the building as well as some recommendations on how the energy rating can be improved (in other words how the building can be made more energy efficient). Implementation of the recommendations is, however, voluntary. In relation to public buildings, there is also a requirement to display an energy performance certificate at the building showing its energy rating. This is intended to encourage public buildings and public authorities to take a lead in improving energy efficiency within the buildings that they occupy.

The governing regulations are The Energy Performance of Buildings Regulations (Certificates and Inspections) (England and Wales) Regulations 2007 (as amended).

Similar provisions apply in Scotland and the relevant governing regulations are The Energy Performance of Buildings Regulations (Certificates and Inspections) (Scotland) Regulations 2007 (as amended).

Finally there is (although currently under review) a CRC Energy Efficiency Scheme levy that has been introduced for all large energy users (those that use more than 6,000 megawatt hours of electricity a year). This requires scheme participants to purchase allowances from the Government by reference to the amount of energy consumed by them. Currently, the cost of the allowances will increase if participants use more energy than they forecast.

The governing legislation is The CRC Energy Efficiency Scheme Order 2010.

The building regulations will apply to any new buildings as well as to any alterations of any structural nature to any existing buildings.

Energy Performance Certificates are required for all new buildings and all existing buildings where there is a sale or a letting.

The CRC Energy Efficiency Scheme applies to the consumer of the energy rather than the building itself, although any energy consumed in relation to the occupation of residential buildings will be discounted from the calculations. However, the owners of any large commercial buildings are likely to automatically qualify as a result of the energy used in that building, as will any large users of energy, regardless of the types of buildings they own.

The market requires these to be produced where required on lettings or sales. Implementation is, in our view, not as widely carried out as the Government might hope.

BREEAM certification is very popular in relation to new developments. This can attract better letting terms from occupiers keen to show their green credentials. It is not so relevant on existing buildings, other than perhaps some extensive refurbishments.

In the main this will be a matter for contract between the parties. For residential buildings the landlord would usually pay the water rates. Otherwise all electricity and heating costs will generally be passed to the tenant.

Generally the landlord will not have a right to perform any construction measures to improve the energy efficiency unless it does so at its own cost and with the agreement of its tenants. The landlord may have rights to carry out improvements in the shared or common parts of the building. Some of those costs may be chargeable to tenants where the works are necessary to carry out repairs or maintenance (and the improvement is ancillary) but unlikely otherwise. More modern leases might seek to provide for the landlord to be able to improve the energy efficiency of a building and charge this cost through the service charge to the tenants. Where significant works have been carried out to residential buildings then the landlord must also follow a statutory regime of notifying the tenants, obtaining appropriate quotes and selecting an appropriate contractor.

The landlord will only have the ability to recover costs where there is a contractual right to recover those costs under the terms of the relevant lease. Residential leases are less likely to include such a right to recover compared to office and other commercial leases. In more modern commercial leases the landlord may seek to encourage, or compel, the tenant to have regard to energy efficiency when carrying out any alterations that the tenant wishes to make to the building.

No specific standard has yet been agreed or established in the UK market. Wording generally follows an open discussion type approach. Some landlords are seeking to agree a non-legally binding “memorandum of understanding” with tenants with a view to implementing detailed measures under those although this is not yet widespread market practice. Copies of an example memorandum of understanding can be supplied on request.

Although these measures are not yet widespread, there is considerable market interest in the energy efficiency of commercial buildings. Since 2007, a collaboration of leading London commercial property owners, the Mayor of London and the Greater London Authority, known as the Better Buildings Partnership is working to develop solutions (including providing a template for a memorandum of understanding) to increase energy efficiency in commercial buildings.
www.betterbuildingspartnership.co.uk

Comments are as in d above.

Apart from any contractual arrangements landlords will seek to recover costs of improvements from tenants, through the service charge, there is no general trend for landlords to seek to improve the energy efficiency of buildings at their own cost. There are also therefore no particular incentives to improve the sustainability of the buildings or their use other than during construction or refurbishment where the landlord will often implement measures which he will occasionally do even though the cost is higher but otherwise where it makes economic sense to do so.