The effects of the Private Rented Sector Regulations on existing leases and the non-domestic Green Deal

Date: 21st January 2014

As industry awaits the secondary legislation to confirm the finer details of the non-domestic Green Deal which are due later this year, we are going to look at the details of the Private Rented Sector (PRS) regulations and the considerations required to ensure a higher uptake within the non-domestic sector and the consequential effects on property transactions.

Two such instances have presented themselves for consideration that add further complication and present issues that further highlight the complex landlord/tenant paradigm that currently undermines the proposed non-domestic Green Deal. The first issues relates to rent reviews, which under the proposed PRS regulations, will add confusion in instances where new lease negotiations are effected by the non-compliance with minimum energy ratings. In instances where the minimum energy rating is not met, in spite of the “Golden Rule” obligation being met but no improvement in rating transpiring, there is a substantial chance that tenants will use this to pricechip at lease events, putting landlords at a disadvantage.

The second issue is regarding landlord consents in relation to alterations clauses within non-domestic leases. There is no obligation for landlords to fulfil any reasonable requests for alterations affecting energy efficiency out with pre-agreed lease events, unlike its domestic counterpart. Under the proposed Green Deal, the obligation would be with the tenants and not that landlords and this is likely be an approach more favoured by landlords as they become more aware of the implications of the Energy Act.

Taking this approach could lead to conflicts between leasing requirement on a tenant’s side which obligates them to maintain and repair premises to a schedule of condition and the law requiring the landlord to keep a building marketable by meeting a certain EPC rating. Any works commissioned by the landlord to meet their legal obligations could be unfulfilled due on part to the non-maintenance on the tenant’s side. Similarly, if the landlord provides capital monies for the tenant to carry out energy efficiency improvement works which subsequently fails to meet a required level upon assessment; it serves to put them at a disadvantage. It is because of these issues that further consideration is required to the structuring of the non-domestic Green Deal and the consequential effects on existing leases within the context of the Green Deal.

In relation to the impact of property transactions, existing leases will be affected in instances where a Green Deal plan has been enacted by an incumbent or prior tenant. Where this is the case, a buyer, tenant or assignee will need to give an acknowledgement that they are aware that the property is subject to a Green Deal plan and accept they will take over responsibility for future payments of instalments agreed in the Green Deal plan. Again, this could prove to be another point of detraction for property sales/leases as there are fears that

However, in spite of these potential pit falls, the Green Deal also serves to further illustrate the need for solutions in this area and its existence and considerations amongst the industry are providing much needed exposure, debate and new thought. Upon going live we hope that all inconsistencies are remedied and serve to provide an effective vehicle for the transposition of the UK’s non domestic built environment into a less energy intensive era.

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Tags: green deal, private rented sector