MEES add to complicated mix in rent reviews

17 December 2018

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The rent review process is a hypothetical scenario largely open to interpretation and negotiations can become protracted due to the number of issues which influence rental value. These can include evidence, physical factors and lease or rent review provisions. Another issue now complicating the mix is the Minimum Energy Efficiency Standards (MEES) legislation.

The MEES legislation came into effect on 1st April 2018 and prohibits the letting of substandard non-domestic privately rented property. Commercial rented property now has to meet a minimum energy standard of E, with very few exceptions.

Rent reviews generally start from the position that a property is fit for immediate occupation, the landlord has complied with its covenant and statutory obligations, and any tenant’s improvements are to be disregarded. To-date the minimum energy requirements have not been viewed as a particular threat (assuming the property at the very least meets the E standard). However, emerging case law suggests that this position is not water tight.

Depending on the facts of a particular case, a tenant could theoretically construct a credible argument that the tenant’s own improvements and fit out have contributed to a property meeting the minimum E energy rating. As a consequence, if the tenant’s improvements are to be ignored, the property could then fall foul of the MEES legislation. The tenant could use this argument to contest a potential rental increase.

Usually, the impact of the MEES legislation on rent reviews will depend very much on the exact wording in lease, the rent review assumptions and the particular property under review.  We highly recommend that very careful provision is taken to cover possible effects of MEES legislation when drafting leases, whether for landlord or tenant.

Well drafted provisions can help reduce further risk of dispute in a process already brimming over with areas of potential disagreement.

I have worked with Jeremy Symons over the past three years successfully leasing and buying property in support of my business. I continue to be very pleased with his knowledge of the market and expertise. Our relationship over this time has resulted in acquiring 20,000 sq ft at Capital Business Park in Cardiff, leasing 11,000 sq ft at Southpoint, and subsequently leasing an initial 42,000 sq ft at Parc Bedwas, followed by a succession of expansions of a further 11,000 and then 47,000 sq ft, enabling us to centralise all of our operations at Parc Bedwas in a single 100,000 sq ft facility. The acquisitions were completed at the perfect time for tenant purposes and the rent fixed throughout the term at very economical rates. A job well done.

Bob James, Aerfin