Navigating MEES compliance and the growing impact of green lease obligations
Environmental sustainability has evolved from being a secondary consideration to becoming a key focus within commercial property law. Driven by the government’s net zero commitments and tougher building efficiency standards, these developments are reshaping lease negotiations and ongoing management practices. Since April 2023 the Minimum Energy Efficiency Standards (MEES) have applied to all commercial leases, prohibiting landlords from granting new tenancies or renewing existing tenancies at properties with an EPC rating of below E. Proposed changes signal a shift to C by 2027 and B by 2030
An increasing area of uncertainty in commercial leases concerns who should fund the necessary upgrades to bring properties up to MEES standards. Whilst landlords hold primary responsibility; they may seek to recover these costs from tenants, such as through a service charge. Tenants, however, are often unwilling to fund improvements that enhance the landlord’s capital asset.
As landlords have primary responsibility in relation to the MEES regulations, clauses are being included in leases that allow landlords greater oversight in relation to energy/water usage and waste, and which enable the landlord to carry out energy efficiency improvements or restrict potential changes a tenant may wish to make to the property.
From a drafting perspective, these developments mean that both landlords and tenants must pay closer attention to so-called “green lease” provisions at the outset of a transaction. Parties are increasingly negotiating express obligations relating to cooperation with energy efficiency works, data sharing for environmental performance, and limitations on alterations that could adversely affect an EPC rating. Careful consideration is also required to ensure that repair, reinstatement and yielding-up obligations do not inadvertently place one party in breach of MEES requirements.
As energy efficiency standards continue to tighten, proactive lease drafting and early engagement on compliance issues will be key to managing risk and avoiding disputes during the term of a commercial lease. If you are looking to grant or take a lease and are concerned about who is responsible for environmental obligations, our Real Estate team is here to help you.
