A recent case has highlighted the approach taken by the courts in relation to 'green lease' terms in lease renewal proceedings under the Landlord and Tenant Act 1954. This judgment is of particular importance as more and more landlords look to increase the energy efficiency of their properties.

Renewal Lease

The case (Clipper Logistics Plc v Scottish Equitable Plc) concerned a tenant of an industrial unit who sought determinations from the court under the Landlord and Tenant Act 1954 in relation to various terms of a renewal lease.

The terms in dispute between the landlord and tenant were as follows: 

  1. A prohibition on the tenant from carrying out alterations which would result in the property having an energy performance indicator below band E;
  2. An obligation on the tenant to indemnify the landlord for the cost of a new EPC certificate, in the event that the tenant or any other occupier were to make such alterations; and
  3. An obligation on the tenant to:
    • maintain the current EPC rating;
    • return the premises with the same EPC rating; and 
    • promptly carry out any remedial works required to restore the EPC rating.

Green Lease Terms in Lease Renewal Proceedings

The Court's Decision

The court approached the disputed terms in accordance with the principles set out in O'May v City of London Real Property Company Limited, firstly by considering the terms of the current tenancy and noting the burden of persuading the court to depart from these terms rests on the party proposing the change, and secondly by noting that the proposed changes must be fair and reasonable as between landlord and tenant, taking into account the circumstances of the case.

The court also noted that the bulk of the obligations in the Energy Performance of Buildings (England and Wales) Regulations 2012 and the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 are specifically placed upon landlords and not tenants.

Taking these points into consideration, the court deemed that, taken together, the proposed clauses would impose a number of unfair and unreasonable duties on the tenant, many of which were actually the landlord's obligations. The only clause which was permitted was part of the reinstatement clause requiring the tenant to return the property with the same EPC rating as at the start of the lease. The court held that without this, the landlord does not have the benefit of any real protection against any inaction by the tenant.

Key Points for Consideration

  1. Tenants, particularly those who are only taking a short-term lease renewal, are likely to be concerned by the increased costs of complying with additional 'green lease' terms and may be reluctant to accept such additional obligations.
  2. When negotiating the renewal lease, landlords must bear in mind that:
    • the bulk of the obligations in the Energy Performance of Buildings (England and Wales) Regulations 2012 and the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 are specifically placed upon landlords and not tenants; and 
    • any additional obligations contained in the proposed renewal lease must, in the circumstances of the case, be fair and reasonable as between the landlord and tenant.

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