Real Estate Bulletin - September 2018

Real Estate Bulletin - September 2018

Real Estate Bulletin - September 2018

Welcome to the September 2018 edition of the real estate bulletin - an e-bulletin from the Real Estate group at Stevens & Bolton LLP.

A link to the web version of this email update is available here. If you would like to receive these updates via email, please subscribe.

Contact our experts for further advice

  1. Retail: Pop ups

    Rebecca Walker and Helen Wheddon provide some insight and expertise to retailers on the risk and rewards of trading by way of a ‘pop up’ store in their recent article published in FashionCapital. Read more

  2. "Smash and grab" adjudications and the right to adjudicate the "true value" - a significant change in approach by the TCC

    Grove Developments Limited v S&T (UK) Limited [2018] EWHC 123 (TCC) In what is likely to be his last substantial judgment in the Technology and Construction Court (TCC) before his elevation to the Court of Appeal,  Coulson J handed down a... Read more
  3. Landlord's consent to assign

    Landlord's consent to assign - the landlord's decision must be reasonable, but not necessarily all the reasons   Landlords considering tenant applications for consent to assign, underlet, charge or part with possession are generally subject to... Read more
  4. UK government publishes draft legislation to identify overseas beneficial owners of UK property

    Two years ago David Cameron announced plans to introduce a register of overseas entities owning UK land (the Register), with the objective of identifying and recording overseas entities who transact in UK real estate to prevent and combat those entities... Read more
  5. Proposed register of beneficial owners of overseas companies and other legal entities

    How it may affect property transactions in England and Wales   Who needs to know about these proposals? overseas companies and other legal entities that own or are intending to acquire UK property; and anyone dealing with such overseas... Read more
  6. Purchaser considerations when buying property from a company in administration

    Partner and Co-Head of the Restructuring & Insolvency practice at Stevens & Bolton LLP, Tim Carter, has recently contributed a practice note to LexisNexis which looks at the practical considerations purchasers should bear in mind when buying real... Read more
  7. Minimum Energy Efficiency Standards (MEES)

    Minimum Energy Efficiency Standards (MEES) apply to both residential and commercial properties but the two regimes are different - this briefing covers commercial properties, described by the regulations as “non-domestic” properties. What is... Read more
  8. MEESly claims? What do Minimum Energy Efficiency Standards (MEES) mean for dilapidations claims for commercial property?

    Landlords and tenants have been preparing to navigate the MEES regulations for some time, but since the regulations now apply to all new leases landlords and tenants can expect arguments about the MEES obligations to form part of the discussion over dilapidations at the end of the lease.

    Since 1 April 2018 a landlord of a commercial property with a valid energy performance certificate (EPC) with a rating of F or G must not let the property, unless an exception or exemption applies. A landlord who does so faces financial penalties and may be “named and shamed”. Where there is no exception or exemption to rely on, a landlord of F or G rated property would be well advised to undertake works to improve the energy performance rating before it lets the property to a new tenant.

    It is well established that a landlord cannot recover damages from a tenant for a breach of repairing covenants where the repairs will be rendered valueless by works the landlord will do to the premises after the expiry of the lease. This is known as supersession. Tenants of premises with a valid EPC rated less than E (and where an exception or exemption does not apply) will therefore inevitably argue that the landlord’s dilapidations claim should not include works which will be superseded by works the landlord has to undertake in order to re-let in compliance with the MEES regulations.  A tenant will argue it should not be liable to repair anything which the landlord is going to have to replace in order to improve the EPC rating of the property so that it can be re-let lawfully. 

    Commercial properties with an EPC rated F or G might well require improvements to lighting, heating systems or air conditioning in order to reach the minimum standard. If, for example, the landlord must replace the air conditioning system altogether in order to raise the energy efficiency of the building to an E rating, the tenant might be able to argue successfully that it has no obligation to repair the air conditioning at all. In this way the tenant may be able to reduce its dilapidations liability significantly.

    Where a property requires improvement to reach an EPC E (or above) rating, there may be different ways to achieve this. The landlord will want to elect which of the inefficient features of the building it chooses to improve and will not want its hands tied by the tenant’s desire to minimise the dilapidations claim.  Therefore the landlord needs to be forearmed with advice from an EPC assessor on the most cost effective means of improving the EPC rating in the face of such claims. Similarly, tenants who could make significant savings on dilapidations will also be looking to EPC assessors to advise where the necessary improvements need to be made.

    Landlords and tenants should also take advice on the wording of the lease before relying on these arguments to establish whether the repairing and reinstatement provisions impose obligations to make improvements. In every case, the extent of the tenant’s obligation turns on the precise wording of the lease which will ultimately govern whether the tenant can take advantage of MEES to reduce its dilapidations liability at lease expiry.

    Of course, dilapidations do not have to be addressed only at the end of the lease. If the property is in disrepair and the lease permits it, the landlord might have grounds to serve a notice of disrepair on the tenant and require the tenant to carry out works during the term. In that case the tenant would not be able to argue supersession and instead could be forced to comply with its repairing obligations during the term.  If the tenant fails to carry out the works, and the lease allows it, the landlord could be entitled to carry out the works itself and recover the costs from the tenant.  However, if the standard of repair required by the lease means that the property still falls short of the minimum standard, the landlord may still have to undertake works at the end of the term in order to re-let lawfully. Landlords considering serving notices of disrepair should act cautiously and take legal advice because failure to serve the notice correctly and carry out legitimate works could expose the landlord to a claim for damages.

    Starting on 1 April 2023, landlords continuing to let properties with a valid EPC which at that point in time is rated less than E will be in breach of MEES unless an exception or exemption applies.  This means that a landlord of premises subject to a lease which expires after 1 April 2023 will need to undertake MEES improvement works during the term of the lease in order to continue to let the property lawfully from 1 April 2023. Landlords of such leases should look ahead and see if the lease permits them to pass the liability to upgrade to their tenants during the term in order to avoid bearing the cost of any necessary improvements. Landlords with leases which outlive their EPCs will need to take a tactical view on whether to renew their EPC voluntarily in order to pass on obligations to their tenant (if they can) or allow it to expire so that the regulations do not apply.   

    The best way to mitigate liability in new leases is to draft leases taking MEES into account.  Landlords and tenants should be looking very closely at the wording of the repair, reinstatement, service charge and other obligations in their leases to establish who should pay for MEES improvements.

  9. Contaminated Land

    The Contaminated Land Regime applies to all land, regardless of use. It can affect owners, occupiers, developers and lenders. Liability under the legislation is retrospective as well as prospective. Local authorities have a duty to continue to inspect their... Read more
  10. A guide to successful development: Easements

    Easements which have not been properly investigated or understood have the capacity to sterilise development of land.  This note explains briefly what easements are, examines why they might be important to a developer and considers what can be done... Read more
  11. Disputes: Know your client

    For those with a Prime Resi subscription, Naomi Campbell looks at the effects a recent Court of Appeal ruling on property fraud will have on estate agents, particularly those involved in acting for purchasers in conveyancing transactions. Read more

  12. Real estate advice

    Stephen Rockhill is a regular contributor to The Times and Sunday Times. For those of you with a subscription to The Times his insights include answers to the questions:

    Can you claim for loss of light? - Read more

    Can’t safely back out of your driveway? - Read more

  13. For your diary

    We’re excited to announce two upcoming events in November, so feel free to save the dates and further details will be made available closer to the time.

    Real Estate Development Workshop
    22 November

    One Great George Street, London

    CPD Seminar
    29 November

    Harbour Hotel, Guildford

  14. Lawyer in the spotlight

    Ben Willis, who has recently joined our Construction team as a Managing Associate after 10 years at Womble Bond Dickinson, gives us an insight into his life outside law…

    If you weren’t a lawyer, what would you be?
    When I was young I really wanted to be a palaeontologist. I always fancied going round the world digging up dinosaurs!

    What was the last book you read and would you recommend it?
    Total Competition: Lessons in Strategy from Formula One by Ross Brawn and Adam Parr. A fascinating insight into F1 and wider lessons which apply to all of us in business.

    What luxury item would you take with you to a desert island?
    My wetsuit. Being a bit of a triathlete, I would definitely try and swim back to civilisation. Or end up as shark food.

    Which film star would play you in a movie about your life?
    If I’d gone down the palaeontology route, Harrison Ford as dinosaur digging equivalent to Indiana Jones!

    Where haven’t you been in the world that you would most like to visit?
    Costa Rica. It seemingly has everything – volcanos, two oceans, rainforest, wildlife.

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