Renewable energy installations
There has been a noticeable surge over the last 5 years in terms of the installation of renewable energy sources, the most popular - unsurprisingly given roof area space on industrial assets - being solar photovoltaic panels (PV).
A number of recently negotiated commercial leases that we have worked on have included the following provisions which you may wish to consider:
- Allowing specific rights for the landlord to access the property to install PV panels; allowing the tenant the right to use the electricity generated (sometimes at a discounted rate to reflect the actual cost of provision); and, depending on usage, the ability for the landlord to require a PV rent to be paid by the tenant for the use of the electricity. Our real estate and energy teams have created bespoke wording dealing with the rentalisation of this element which we can add into your leases as and when required.
- Ensuring that the PV panels form part of the tenant's demise (thus putting the responsibility for repair and maintenance onto the tenant).
- The ability for the landlord to sell any excess energy generated back to National Grid.
- Most crucially, ensuring that any rights for any party to install PV panels on the roof do not invalidate any collateral warranties or guarantees which may be available for the roof, particularly on new developments. We have wording catering for this.
ESG: Dealing with the post 1 April 2023 ‘E’
The Law: There is already a plethora of commentary around the post 1 April 2023 Minimum Energy Efficiency Standards (MEES) changes. Below are some considerations, based on what we are seeing others do.
On many new acquisitions, we are seeing clients obtain enhanced EPC assessments, or for draft EPCs to be prepared, allowing for the cost of any energy efficiency works to then be factored into the wider pricing / rent calculation. Tactically, it is important to consider the merit in registering those informal EPC ratings (or not, as the case may be) and we have been considering the strategy in this regard with many of our clients, particularly on new acquisitions.
Keep an eye: Going forward the expiry dates of EPC certificates should be flagged in both your general asset management and checked early on acquisition due diligence. It is intended that requirements will become more stringent, with a minimum EPC rating of 'C' by 2027, rising to a 'B' or higher by 2030.
Estate service charge provisions
A warehouse unit on an industrial estate will usually be subject to estate management charges in connection with the wider estate. Those costs should be passed down to your occupational tenant in the lease, but with rising inflation and a cost of living crisis, these provisions are being more and more heavily negotiated. Here are certain elements that are more recently being discussed:
- Tenants seeking to exclude or limit the more volatile costs from the service charge, for example, labour, electricity and oil costs. Ensure that HoTs clearly specify that there shall be no caps or exclusions.
- Consider which index to adopt for uplifts. RPI, CPI and CPIH are all calculated differently. If annual indexation / compounding is required, specify that at HoT stage.
- If necessary, specify expressly the ability for the landlord to recoup costs for carrying out energy efficiency upgrades to the property and wider estate.
- Consider whether service charge caps should be personal to the named original tenant.
- Electric vehicle charging points are becoming increasingly common. We have considered in some detail with our I&L clients how costs incurred in the installation and maintenance of such charging points are managed, together with how day-to-day charging costs may be recovered in full from tenants.
