“The greenest building is the one that already exists” – are the now famous words of Carl Elefante the former president of the American Institute of Architects. With government targets of Net Zero by 2050 there has been a lot of talk about the benefits of retrofitting existing buildings to improve their energy efficiency and to prolong the life of the building and the value of the investment.
Retrofitting as a concept is the action of installing newer technology designed for high energy efficiency and low energy consumption into an existing building and commonly relates to installation of thermal insulation or replacement of an older heating system that wasn’t fitted at the time of the build. There is some discussion as to whether “retrofitting” differs from “refurbishment”: some suggest that refurbishment is perhaps a more in depth overhaul whilst retrofitting is a bit more of a light touch upgrade. There are clearly varying degrees of retrofit.
Does this matter I hear you ask? Well it does if you are a landlord with a tenanted property. The opportunities to retrofit or to generally improve the energy efficiency of the property are relatively limited. Even if the landlord wanted to retrofit their occupied property during the lease term, specific wording in the lease may well prevent it from doing so. One of the reasons such wording is consciously included in leases is to enable a landlord to seek an exemption under the MEES Regulations (Minimum Energy Efficiency Standards). This so called “Consent Exemption” allows the landlord to continue to let a sub-standard property, for now at least. This is a common tool where the landlord is just not ready or able to fund a retrofit and it has the added bonus for the tenant of knowing that their business activity is not going to be disrupted by retrofit activity. The flipside of course is that the tenant will not get the benefit of a more energy efficient property.
But what about a tenanted property where the lease is coming up for renewal and the tenant has a protected tenancy under the Landlord and Tenant Act 1954?
Under the Landlord and Tenant Act 1954 there are a number of statutory grounds on which the landlord can rely to refuse a tenant’s request for a new tenancy and get possession of the premises and one of those is ground F: Landlord intends to demolish or reconstruct. This is a mandatory ground and if proven by the landlord the Court must refuse the request.
To prove this ground the landlord must show that it intends either to demolish or to reconstruct the premises comprised in the holding or a substantial part of those premises or to carry out a substantial work of reconstruction which they could not reasonably perform without obtaining possession of the premises.
There is clearly an argument as to whether or not a retrofit would fall within this ground. Landlords who are well funded may be considering “deep” retrofits in order to gain maximum long term benefits.
All of the works must be taken into account, but no consideration will be given to works that the landlord is entitled to do under the lease (or under the new lease). In addition, existing case law confirms that the installation of wiring and plumbing will not qualify as works of construction nor will the installation of boilers and toilets (Barth v Pritchard [1990] 1 EGLR 109) although the installation of drainage and bathrooms where they did not previously exist will qualify as works of construction (Romulus Trading Company Ltd v Henry Smith's Charity Trustees [1990] 2 EGLR 75).
When determining whether or not the landlord requires possession of the premises to carry out the works, the Court will consider:
Note though that as a defence to the landlord’s claim a tenant could seek to rely on the provisions of section 31A of the Landlord and Tenant Act 1954. This clause provides that a landlord cannot rely on ground F if the tenant agrees to provisions to allow the landlord to carry out the works under the new lease or to a new lease of part only of the premises. The Court must still however consider whether or not there will be substantial interference to the tenant during the works, and this will be a question of fact and degree.
Where the landlord is not permitted access to carry out works to improve the energy efficiency under the existing wording of the lease and the landlord’s works are likely to interfere substantially with the tenant’s use (as to extent and time) this does lean in the landlord’s favour in terms of potentially getting possession under ground F and this is worth bearing in mind when negotiating a new lease.
In addition the landlord must show an intention to carry out the works by demonstrating a firm and settled intention to do the works and a reasonable prospect of achieving the intention. The quality of the landlord’s intention rather than the motive for the works is important (S Franses Ltd v The Cavendish Hotel (London) Ltd [2018] UKSC 62).
In addition to getting access, consideration should also be given to the need for planning permission and building regulations consent.
If you are considering retrofitting your commercial property please get in touch with Susanne Hinde
Susanne Hinde is a Partner in the Commercial Property Team at Howes Percival in Cambridge who specialises in advising Landlord & Tenants on their investment / occupation requirements. You can contact Susanne for advice [javascript protected email address] or on 01223 791026.
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