Environmental standards and the cost to office occupiers

With 10% of the London office market currently rated below an EPC rating of E (being the minimum to be required by the minimum energy efficiency standards by 2023 in order to continue to let premises), the question of whether a landlord can recover expenditure on energy efficiency improvements from occupiers and, if so, how much is set to be an increasingly frequent discussion between landlords and tenants.

Occupiers of whole buildings will retain some control in this respect as they control the premises and to a greater extent any works carried out. Occupiers of a part of a building on the other hand will have no control over landlord works carried out to common parts and will need to carefully consider the service charge provisions in the lease with this question in mind.

Short-term office occupiers will undoubtedly question how much benefit they will take from investment by the landlord with a view to compliance with standards beyond the lease term. Meanwhile, with the likely requirement for non-domestic properties to achieve the significantly higher EPC rating of B by 2030, landlords will increasingly look to service charge regimes in order to recover the costs of investment from longer-term tenants. Whilst there are clear benefits to the tenant of energy efficiency improvements (including reduced outgoings and the resulting green credentials), the extent of improvements required to current properties will likely require fundamental changes to building services at significant capital expenditure (particularly in older buildings).

As we start returning to our offices we should keep in mind how these spaces will need to transform and how the bill will be split in order that office spaces can keep pace with minimum energy efficiency standards.

If you would like to know more about Environmental standards and Office Occupiers please contact myself or your usual Charles Russell Speechlys contact. For more information on our Office Occupiers and Real Estate expertise click here.