Business leases: responsibility for energy efficiency obligations

The Sheffield County Court has refused to allow a landlord to impose on its tenant obligations under energy efficiency regulations on a lease renewal under the Landlord and Tenant Act 1954 in Clipper Logistics PLC v Scottish Equitable PLC Claim No G00SE930. The claim concerned a steel-framed distribution unit on an industrial estate in Rotherham let for 10 years until December 2019. The defendant landlord was willing to grant a new tenancy and most of the terms of the new lease were agreed. The principal areas of disagreement were: the length of the term; the inclusion of alteration clauses concerning compliance with energy efficiency regulations; and the rent. Under sections 33-35 of the 1954 Act it is for the court to determine the length of the term and the open market rent under the new lease. Changes to other terms must be fair and reasonable bearing in mind the terms of the current tenancy, the weak negotiating position of a sitting tenant and the fact that the general purpose of the Act is to protect the business interests of the tenant. It is for the party arguing for the change to justify it: O’May v City of London Real Property Company Limited [1983] 2 A.C. Term: the claimant sought a five-year term to enable it to respond to changes in the market and protect its business interests which relied heavily on 12-month supply contracts. The defendant argued for a 10-year term with a tenant-only break at five years because it provided greater business certainty and investment value. A 12-month notice period for a break would enable the defendant to prepare to relet: with a shorter term the claimant did not have to provide notice of its intention to stay or go. The court preferred the defendant’s proposal: a shorter term would not afford the claimant any greater protection. Alterations: the defendant sought to prevent the claimant carrying out alterations which would render the property “sub-standard” under the Energy Efficient (Private Rented Property) (England and Wales) Regulations 2015 and for the claimant to carry out the necessary works to bring the property back to a given EPC standard should such works be carried out. The current lease wording prohibited the claimant from making alterations to the structure and external appearance of the premises and required landlord’s consent for any other alterations, so it would be difficult for the clamant to reduce the EPC rating so as to make the property sub-standard. The effect of the proposed clauses was to unfairly and unreasonably impose on the claimant a number of duties which in law were the defendant’s.  The court did permit a requirement that the claimant should return the premises to the defendant with the same EPC rating as it had at the date of the lease. Rent: the claimant argued for a rent of £687,000 and the defendant for £852,000; both agreed that the interim rent should be payable at the same rate as the new rent. The court decided that the claimant’s expert had lost sight of the need for impartiality and found in favour of the defendant. Louise Clark is a property law consultant and mediator