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.