Commercial EPC at lease renewal and re-letting

Why the renewal is the moment

Under the minimum standards regime the restriction applies to granting a new letting, so the obligation surfaces when you are doing exactly that. The current minimum is EPC band E.

What makes this more opportunity than problem is that everything which makes the work expensive at other times is absent. There may be a void. The tenant is already at the table. Dilapidations, rent, term and incentives are all in play, and the work can form part of that package rather than being a separate cost with no counterparty.

Using the negotiation

• Do the work during the void between leases, where there is one. Cheapest version of the same job, and the unit lets better.
• Fold it into the incentive package: a contribution to fit-out that happens to include the lighting is a different conversation from a landlord cost with no return.
• Agree the tenant specification up front, so a new fit-out does not undo a rating you have just paid to achieve.
• Deal with dilapidations and improvement works together rather than sequentially, since the same trades are on site.
• Set the lease terms so the next renewal is easier: access rights, consent to alterations, and who is responsible for what.

The tenant has an interest too

A tenant pays the energy bill, so the measures that improve the rating also reduce their outgoings. That is a genuine shared interest and it is frequently unexploited, because the conversation is framed as a landlord compliance cost rather than as a reduction in the tenant’s running costs.

Framed properly, a landlord-funded lighting upgrade against a modest rent adjustment can leave both parties better off. Framed as compliance, it is a cost one party resents.

What to write into the new lease

This is a solicitor’s territory, but the shape of it is worth knowing: rights of access to carry out energy works, control over alterations that could worsen the rating, obligations around reinstatement at expiry, and clarity about who holds and renews the certificate.

A lease drafted without any of that leaves the landlord carrying an obligation they have no practical means of discharging for the length of the term, which is the position a great many landlords are currently in.