Service Charge

In part 1 paragraph 6 (Service Charge Disputes) add

The Tenant is not entitled to challenge any element of the Service Costs which may have been procured at a lesser expense where the increase in costs is as a result of the Landlord procuring Services which promote the Environmental Performance of the Building [provided that the Landlord must ensure such costs are no greater than 10% more than they otherwise would have been]. 

Drafting note 

Where the parties have agreed that the Landlord is under an obligation to provide services in a certain way (e.g. relating to sustainable use, the procurement of green energy, Waste policies and complying with the circular economy principles) so as to Improve the Environmental Performance of the Building then the 10% cap may not be appropriate because the cost of compliance should be recoverable in whole.
part 2 (Landlord’s obligations) amend paragraph 1.1 (if using option 1 in the MCL) or 1.2 (if using option 2 in the MCL) as follows

The Landlord acting reasonably and in the interests of good and environmentally responsible estate management: 

Add as new sub paragraphs to part 2 paragraph 2.1

[The Landlord] is entitled to have regard to the Environmental Performance of the Building. [The Tenant acknowledges that, as a consequence, the Service Costs may be higher than if the Landlord procured the Building Services without due regard to promoting Environmental Performance. The Landlord must ensure that any difference in costs is economically proportionate].

[The Landlord] must take reasonable steps to minimise the number of deliveries to the Building.

In part 3 (Building Services) or part 4 (Additional Services) include the following 

Carrying out any works and providing and maintaining all facilities and doing all other things required by this Lease relating to the Environmental Performance of the Building;

In part 3 (Building Services) or part 4 (Additional Services) include the following where there are not clear lease obligations covering such issues. 

Storing, compacting recycling and disposing of Waste [including the provision of appropriate Waste segregation system]; 

Installing any of the following meters, sub-meters, check meters and Automatic Meter Reading devices or other equipment to measure the supply of gas, electricity, water or other energy or utility supplied to the Common Parts and Lettable Units within the Building; (Drafting note- consider whether this provision needs to be amended to reflect the provisions of any data sharing or metering clause also in the Lease.)  

The installation and maintenance of technology to monitor and control the Environmental Performance of the Building; 

Taking such steps as the Landlord considers appropriate to reduce water wastage (including installing plant and equipment for the purposes of recycling water (including Greywater) and capturing and using rainwater);

Paying all existing and future taxes, duties, charges, levies, assessments or financial impositions charged to the Landlord in respect of the carbon emissions or any other environmental impact related to the Premises and the Building;

Obtaining professional advice which is designed to Improve the Environmental Performance of the Building; Drafting note – part 4 paragraph 5 (Additional Services) already covers the costs of employing agents and contractors and this may be considered sufficient.

Consider amending part 4 (Additional Services) paragraph 15 so that auditing the Environmental Performance of the Building is extended to include collecting and analysing the data. Whilst this makes things clear the same amendment will need to be made to paragraphs 13 and 14 to avoid an assumption that in these cases auditing does not include collecting and analysing the data. Also consider whether the clause should be extended to cover Social Impact data.  

Note also that part 4 (Additional Services) paragraph 15 of the MCL includes implementing the recommendations of any environmental management plan the Landlord has for the Building or any estate where reasonable and cost effective to do so. 

The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 as amended (“the MEES Regulations”) which came into force on 1 April 2016 prohibit new lettings of most residential and commercial property if it is "sub-standard" (which is currently defined in the Regulations as having a valid EPC with a rating below band E) unless all relevant energy efficiency improvements have been made to the property or there are no improvements which can be made or unless one of the exemptions in Chapter 4 of the Regulations applies and has been registered on the PRS Exemptions Register. In the case of residential property, only certain types of letting are caught by the MEES Regulations which will include assured and assured shorthold tenancies. In the case of commercial properties all lettings will be caught except leases for a term certain of more than 99 years and lettings not exceeding 6 months unless they contain provisions for renewal or the Tenant has been in occupation for a continuous period exceeding 12 months. 

With effect from 1 April 2020 continuing lettings of residential property were subject to the same prohibition and with effect from 1 April 2023 continuing lettings of commercial property were subject to the same prohibition. This prohibition will apply to continuing lettings of commercial properties where a valid EPC exists on 1 April 2023 or if none exists then, when a valid EPC next exists. 

Following consultations on increasing the MEES trajectory for both residential and commercial property between 2019 and 2021 the UK Government has confirmed in various policy statements that: 

it proposes to increase the minimum energy efficiency of property which is let and which is within the scope of the MEES Regulations as follows: 

• For residential property the required minimum energy efficiency for all in scope new and continuing lettings will be an EPC rating of band E; 
• for commercial property by requiring all new or continuing lettings to have a minimum EPC rating of band B. It was initially proposed this would apply from April 2030. It is unclear whether the proposed interim uplift to a minimum requirement for an EPC rating of band C in 2027 will apply at all. In October 2023 the government indicated any time line for any uplift would be pushed back to allow a sufficient lead in time. 

The consultations also proposed clarifying the current uncertainty about whether lease renewals and listed buildings or buildings in a conservation area need to comply with the minimum energy efficiency standards and proposed in both cases to make it clear that they did. 

One of the available exemptions in the MEES Regulations is the "consent exemption". This applies where a landlord has within the preceding 5 years been unable to increase the EPC rating to the minimum level required because a tenant has refused to consent to relevant energy efficiency improvements being made or where despite reasonable efforts being made by the landlord a third party consent it requires (e.g. planning consent, lender consent, superior landlord consent or the tenant’s or other tenants’ consent) has been refused or granted subject to a condition with which the Landlord cannot reasonably comply. This exemption will only apply to the extent of the works for which consent is required and cannot be obtained. Other relevant improvement works would still be required.  

Where landlords seek to extend their right to do works to Improve the Environmental Performance of a Building or the Premises they should be aware that where the lease includes a landlord’s right to do the necessary works this will remove the availability of the consent exemption where the right is absolute and may affect the exemption in other cases. Advice should be sort if needed in the particular circumstances of a lease. However even if no such right is included in a lease a landlord will still need to make reasonable attempts to obtain a tenant’s consent. In that event if the tenant grants such consent the exemption would not be available.