In Clipper Logistics Plc v Scottish Equitable Plc, the County Court considered the approach to be taken to 'green lease' terms in lease renewal proceedings under the Landlord and Tenant Act 1954.
The Claimant tenant of an industrial unit in Rotherham sought determinations from the Court under the Landlord and Tenant Act 1954 regarding various terms of a new lease, the term of its previous lease having expired in September 2020. The tenant and Defendant landlord agreed many of the terms of the new lease in pre-trial negotiations; the County Court was required to determine those that could not be agreed.
Issues in dispute
By the time of the trial, five categories of lease terms remained in dispute between the parties, one of which was the 'alterations' clause. The landlord contended for covenants which would:
- Prohibit the tenant from carrying out alterations which lead to the property having an energy performance indicator below band E, such that the property would be considered "Sub-Standard" (the Prohibition Clause)
- Provide an indemnity for the cost of a new EPC certificate in the event that the tenant or any other occupier were to make such alterations (the Indemnity Clause)
- Obligate the tenant to maintain the current EPC rating, return the premises to the landlord with the same EPC rating, and promptly carry out remedial works to restore the EPC rating if it falls (the Reinstatement Clause).
The Court's decision on the alteration clauses
The court approached the issues in dispute between the parties in accordance with the approach set out in the well-known case of O'May v City of London Real Property Company Limited. Namely, the court began by considering the terms of the current tenancy and noted that the burden of persuading the Court to depart from these terms rests on the party proposing the change. The court also adopted the reasoning from O'May that any change proposed must, in the circumstances of the case, be fair and reasonable as between landlord and tenant.
The court observed that the bulk of the obligations in the Energy Performance of Buildings (England and Wales) Regulations 2012 and the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 are expressly placed upon landlords and not tenants.
The court considered that taken together, the landlord's proposed clauses would unfairly and unreasonably impose on the tenant a number of duties which are in law actually the landlord's. In relation to each proposed clause, the court held that:
- There was no reasonable requirement for the Prohibition Clause, due to the existing clauses in the lease (which would be replicated on renewal) prohibiting the tenant from making alterations to the premises
- The Indemnity Clause, if permitted, would place too significant a burden on the tenant
- The part of the Reinstatement Clause which required the tenant to return the property with the same EPC rating as at the start of the lease ought to be permitted, as without the clause, the landlord would lack any meaningful protection against inaction by the tenant which could make the property "sub-standard" and have significant adverse consequences for the landlord
- The remainder of the Reinstatement Clause should not be permitted, as this would unreasonably burden the tenant and unfairly advantage the landlord.
Attributed to Mark Barley and George Napier.