Green Dilapidations - A Double Edged Sword?
During the latter period of a commercial property contractual term, in which repairing covenants are typically applicable under the terms of a governing lease, landlords and tenants traditionally grapple with matters of dilapidations. Whilst already a matter of often inherent complexity, the emergency of green dilapidations brings an added layer of considerations.
The Back Story
Where it began
Green dilapidations, or the concept of such, remains in its infancy, comprising prioritising sustainability and the environment as a key factor in preparing and negotiating the dilapidations claim. The consideration extends to the pursuit of energy efficiency, carbon foot print limitation, the possibility of incorporating sources of renewable energy and considered waste management.
Obstacle to Change
Shifting of priorities
Whilst such an approach to dilapidations matters might be both welcomed and even applauded, can green considerations really be a primarily consideration in a landlord claimant’s strategy to protect the value and market appeal of their asset in a predominantly, returns focussed, capitalist world?
Compliance & Expectation
Control and limitation
In order to meet heightened energy performance thresholds as required in order legally let commercial property, such can necessitate that landlord’s attend energy performance improvement works, as directed by the Minimum Energy Efficiency Standards (MEES), empowered by the Energy Performance of Buildings Directive (EPBD). These and other drivers, such as aligning a property with occupier expectations in the market, will typically act to set a dilapidations claim or component parts of it beyond the scope of legitimacy. Intentions or attendance of works by a claimant landlord that constitute betterment and / or supersession act to mitigate a tenant’s liability where breach of repairing covenant has been alleged to exist.
Improving the energy performance of a building benefits the occupier and the environment, subject to the source and nature of the products, materials and systems employed, although such actions are only considered to benefit the Tenant’s interests in the pure context of a dilapidations claim, having regard for typical commercial leases, entered into a period of years ago.
Seismic Shift Necessity
A future yet unknown
The future of green dilapidations is, of course, yet to unfold and could give rise to a fundamental change to repairing and wider such lease covenant composition, as would be necessary to effect positive change for the benefit of the environment and to mitigate the presently punitive impact on landlord’s means of recourse against a tenant in the face of subsisting breaches of repairing covenant at the end of a contractual term. Such change would likely necessitate an industry wide mindset shift, including a realignment of approach and determination at law, in order to prioritise the environment.
Until a fundamental change of approach in favour of sustainability over monetary matters occurs, it seems that green dilapidations are set to make little if any noteworthy impact upon claim preparation and negotiation. The industry having failed to yield any materially significant volume of claim being approached from a green perspective in these early days, it seems that the legal and regulatory requirements driving energy performance improvements in buildings presently act only to enable tenants to strategically leverage alleged liability mitigation benefits. If a change for the benefit of the environmental is to be arrived at, perhaps on the premise that a greener, more sustainable building is more appealing and thus, perhaps, more valuable, a balancing of landlord’s means of recourse, coupled with a tenant’s right to make energy performance improvements, without necessity to reinstate them, may be just one of many changes necessary.
Node Building Consultancy represent landlord and tenant clients nationwide in a dilapidations capacity. From preparing schedules of dilapidations and carefully procuring works in lieu of such, to developing effective, targeted, claim mitigation strategies, we have invaluable specialist expertise and a proven track record of success in this field. Should you require assistance with your dilapidations matters, we would be delighted to hear from you.
Can green considerations really be a primarily consideration in a landlord claimant’s strategy to protect the value and market appeal of their asset in a predominantly, returns focussed, capitalist world?
