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UK Real Estate Insights
The pinch of the cost-of-living crisis is really being felt this month with energy costs being increased by 27% (on average) in the UK. This piece is an exploration of what both commercial and landlords should look out for but also, and more importantly, some solutions to help landlords and tenants navigate through this crisis.
If you are a commercial leaseholder, your position would be that you either pay directly to your landlord as per a sub-meter reading or to the energy provider directly – all depending on the individual set up. Electricity being used in common parts is somewhat tricker insofar as what you pay and how much, is determined (usually) by the service charge provision in your lease. There may be a cap on the amount a landlord can recover and checking the exact wording of your lease (or negotiating this at the outset) would be key here, or they may not be a cap but a more formulaic approach. The latter might provide a tenant with more rationale as to why certain costs are apportioned in specific ways but can still and often do lead to disputes. Importantly, not all, commercial landlords would need to have regard to the Service Charge Code (a code which in a nutshell promotes best practice and aims to reduce disputes) as this will (again) come down to the wording in your lease.
With energy costs increasing, it is predicted that service charge disputes will be on the horizon, although, commercial leases will usually include some sort of process for dealing with such disputes usually in the form of ADR whether that’s through expert determination, mediation or otherwise.
In the residential context, where a landlord is not deemed to be fair or reasonable when applying service charge costs, a leaseholder could by virtue of section 27A of the Landlord and Tenant Act 1985 apply to the First Tier Tribunal for “a determination whether a service charge is payable and, if it is, as to the amount which is payable.” Leases aside, what is the position with the private rented sector? It is well-known that the pandemic has created a lot of debt amongst renters but with energy costs on the rise, this debt problem only looks to get more dire. Landlords would be well-advised to ensure that the properties that they are letting are energy efficient. For example, ensuring that it meets the Minimum Energy Efficiency Standards (EPC’s to a minimum of C by 2025) as failure to do so will only make it easier for tenants to withhold rent citing disrepair as a defence to a claim for rental arrears.
Non-domestic landlords may be interested to find out what benefits they may get from the Energy Bill Relief Scheme which provides discounts to energy usage between 1 October 2022 and 31 March 2023. Domestic landlords may wish to consider repayment plans for tenants who are suffering with arrears, although overall, both commercial and residential landlords would be well-advised to start considering creative ways to reduce energy costs such as using more environmentally friendly ways to generate energy such as solar panels. Insulating walls would reduce heat escaping from the walls and doing some draught proofing wouldn’t go amiss either which can be as simple as using some self-adhesive strips to conceal any gaps in the property. Smart meters are great insofar as they allow you to see your readings and then assess where the spending is going. Alternatively, getting double or triple glazed windows would help with locking in some warmth whilst reducing water usage (a huge energy waster) could also help too.
A healthy dialogue between landlords and tenants needs to be had about energy minimisation as the crisis effects both sides; the last thing anyone wants is for more businesses to stop trading and for more vacant properties, a wholly undesirable position for both landlords and tenants alike.