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Johnny Kelly, Legal Director, Real Estate

Kelly's corner

Posted on 3 April 2025

There may be scepticism over whether the UK can achieve its target of net zero emissions by 2050, but it's clear the Government is going to give it its best shot. 

In this issue, Lucy Smith looks at possible changes to how energy performance certificates are assessed in commercial properties. We could see other metrics added to the basic carbon test, such as energy use, fabric performance and smart technology. The validity period or "shelf life" of EPCs may come down from the current 10 years to as little as two years, although perhaps five is more likely. 

The current mystifying rules for EPCs in listed buildings will get an overdue refresh. The Government also intends to improve training for EPC assessors, after press reports suggesting that this is a particular area of concern.   

Turning to residential properties, Lucy reminds us that 16% of UK greenhouse gas emissions come from people's homes. In her second article Count on MEES: new consultation on minimum energy standards for residential properties, she reports on plans to increase the legal EPC grade from its current minimum E to grade C for new tenancies starting in 2028, and existing tenancies from 2030. 

Other possible changes include changing the EPC metrics as discussed above, bumping up the cost cap sharply from £3,500 to £15,000 per property and bringing holiday lets within the minimum energy efficiency standards, or "MEES" as we lawyers like to call them.   

The proposals all relate to residential property. We do not know whether, or when, the minimum legal EPC grade will be changed for commercial properties: it's still an E at present. The last Government thought about imposing a minimum grade C from 2027 and B from 2030, but this was shelved before the election. An announcement would be helpful because the industry needs certainty.   

Changes to MEES for residential properties go hand-in-hand with the Government's wider reforms to improve standards in the private rental sector. In Renters rights: swings and roundabouts, my colleague Alison Taylor rounds up progress on the Renters Rights Bill.    

The key change is abolition of the landlord's right to terminate a tenancy – after its fixed term has ended – by simply giving two months' notice without needing to give a reason. These emotively named "no fault evictions" will disappear, and most shorter-term residential tenancies will become rolling terms. Landlords will not be able to terminate except on specific grounds, mostly based on serious tenant default. 

Grounds for termination will broadly stay the same, but with two notable new grounds: sale of the property by the landlord and sale by a mortgage lender. The new Bill makes other "firm but fair" changes in an attempt to strike a better balance between landlords and tenants.  

While on the subject of mortgage lenders, we sometimes see disagreement between borrower and bank over the disposal of secured assets. In Lenders' right to refuse consent under scrutiny, Emily Chandler looks at a recent High Court case on whether a lender's right to refuse consent was subject to an implied term to act in good faith.  

In this case a facility agreement said the borrower could not charge one of its hotels to another lender without the original bank's consent. This consent was refused. Did the bank have complete discretion, or was there a duty to act reasonably? 

The court decided that the truth lay somewhere in between. It found there was an implied duty on the bank to act in good faith, and not arbitrarily or capriciously, when considering a request for consent. So, the bank did not have an absolute right to refuse consent.   

Having said that, on the facts the court decided that the bank was not in breach. It was entitled to give some weight to its own commercial interests, including its desire for the borrower to reduce its loan-to-EBITDA ratio. A Pyrrhic victory for the borrower? 

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