How Might Rising Business Energy Costs Impact Commercial Leases?
The latest in a long line of challenges for commercial landlords and tenants are the extraordinarily high business energy costs. These significant increases could be faced in tandem with winter power cuts and see landlords unable to provide services they are under contract to provide.
Whose responsibility is it?
Under most commercial leases the tenant will have a direct contract with the utility supplier. However, there may be an element of utility costs being included in the service charge in respect of the supply to any communal areas. A tenant with a direct contract with the utility company will be able to negotiate its own supply contract but those provided via the landlord will find themselves subject to the landlord’s own utility supply negotiations. Although in practice it will of course be in both the landlord’s and the tenant’s best interests to keep such business energy costs as low as possible.
Looking to reduce business energy costs?
Consideration should, however, be given if landlords are considering reducing certain building or estate services to reduce their business energy costs. In view of potential obligations under the leases, it would be best if landlords first discuss such plans with their tenants to avoid future disputes.
In the (hopefully) unlikely eventuality of blackouts, landlords may not be able to provide certain services they are under an obligation to provide. They should therefore consider whether “force majeure” provisions in commercial leases will assist in such circumstances.
Coming hot on the heels of COVID lockdowns, the soaring business energy costs that we’re seeing could be the final nail in the coffin for struggling commercial tenants. Landlords should consider discussing with their tenants monthly, or other rental concessions, to buy time for tenants trying to survive yet another challenging period.
One positive is the current energy crisis may well concentrate minds on environmental performance within commercial properties. Landlords and tenants should consider carefully the energy consumption and energy efficiency of their properties and consider ways to improve both, especially in view of the impending increased obligations under the Minimum Energy Efficiency Standards.
At GA Solicitors we are experienced in acting for both landlords and tenants of commercial premises and can provide expert advice on issues that arise from the above. If you’re in need of advice on this, please get in contact today with our specialist and Head of Commercial Property team today by emailing david.stone@GAsolicitors.com or calling 01752 203500.