Crucial commercial decisions that landlords, tenants, developers and investors will have to make to ensure they are adapting and complying with new sustainability legislation.

26 Jan Sustainability legislation for the commercial property market

Posted at 00:00h in Commercial Property Law by

A ‘Green’ Commercial Property Market.

Since the UK Government’s demand for sustainability and a shift towards achieving carbon neutral status by 2050, the commercial property market will undoubtedly see significant changes over the next decade.

Emma White, commercial property paralegal at HRJ Foreman Laws solicitors considers the crucial commercial decisions that landlords, tenants, developers and investors will now have to make to ensure they are adapting and complying with new sustainability legislation for the commercial property market.

Commercial property developers under pressure

Commercial developers and landlords are under increasing pressures to drastically improve their Environmental, Social and Governance (“ESG”) score when investing in property assets.

The Building Research Establishment (“BRE”) stated that landlords must come to terms with the fact that demand for sustainable buildings will only increase as the Government expand sustainability legislation and companies react to become more carbon neutral by nature. It is likely that those who do not follow suit will risk losing a competitive advantage.

The sustainability of commercial property buildings is commonly evaluated using Energy Performance Certificates (“EPC”). The Government has announced its ambitious goal of all commercial properties having a minimum EPC rating of ‘B’ by 2030. In the current market, this is looking more and more unachievable with 80% of UK commercial property risking ‘unlettable’ status due to inadequate EPC ratings and poor environmental performance. This suggests that landlords of new developments will need to shift their focus to more sustainable building designs at the outset and that current landlords will begin to face difficult decisions on whether to rebuild, develop or sell.

Impact of increased sustainability and efficiency on commercial leases

  • When the sustainability and efficiency of a property increase, it is likely the rent will as well. Think of this as the supply and demand effect. Energy efficient buildings are becoming sought after in the commercial market, therefore Landlords will be in a position to charge higher rents.
  • Occupying a more efficient and sustainable property will lower utility costs for tenants. This will, overtime, balance with the increased rents.
  • Landlords will need to carefully consider their access rights during the lease term and whether it is permitted for them to carry out works to improve energy efficiency.
  • The concept of green leases has been created. They contain additional clauses providing for management and improvement of the environmental performance of the property by both landlord and tenant.

For more information about how to comply with the Minimum Energy Efficiency Standards and get legal advice about your commercial property contact our Commercial Property Legal Team today.

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Meet the team

Nicholas Davies, Partner & Solicitor, Commercial Property Law

Harjeet Panesar, Solicitor, Commercial Property Law