The Climate Change Committee’s 2024 Progress Report states that more than three-quarters of the required emissions reductions for the next three carbon budgets are expected to come from sectors (other than the energy sector) including buildings – contributions in these sectors “will need to accelerate fast”.
It may be a truism that energy data is a critical building block for delivering improved energy efficiency in buildings. However, a recent BPF and Savills research report, “Closing the Data Deficit”, highlights that over 50 per cent of the commercial real estate sector is tenanted, but that the current policy landscape does not facilitate the sharing of data between landlords and tenants: this is impeding the decarbonisation of buildings.
The spirit of the report advocates an approach to facilitate two-way data sharing between landlords and tenants to foster collaborative endeavours to implement net-zero strategies.
Currently, the sector uses tools such as green leases to plug this policy gap. However, the research indicated that the take up of green leases varies between different sectors, commercial factors can militate against including data-sharing provisions and landlords can be reluctant to enforce such provisions.
It seems imprudent for the decarbonisation of this sector solely to rely on private initiatives where collaboration is required.
Critically, there is a swathe of old-style leases which will come up for renewal under the Landlord and Tenant Act 1954 (the 54 Act) – currently green clauses are generally not seen as “reasonable modernisation” – so renewed leases are not required to be net zero friendly.
The Law Commission is currently reviewing the 54 Act and is due to consult in the Autumn. Its terms of reference include a requirement to take account of the net zero agenda.
The BPF and Savills report recommends that the Government should require a minimum level of data sharing to provide the data required for baselining, target setting and carbon reporting. Further, reform of the 54 Act could be used to include these provisions in renewal leases. The government should also explore how the non-anonymised granular data needed to implement net zero strategies could be shared whilst allowing for the protection of confidentiality on commercial or national security grounds.
It remains to be seen what the Law Commission will propose in relation to net zero. Any reform of the 54 Act itself will likely apply solely to renewal leases, but the Law Commission may recommend a framework to cover new leases, or even seek to write in green provisions to existing business tenancies, including those excluded from the 54 Act.
However, data sharing is not the only challenge:
The report also identified an over-reliance on manual data collection which is resource-heavy and can be inaccurate. It recommended that the Government should explore how owners and occupiers can be encouraged to work together to install smart meters.
That said, installation can be costly, and require a power down which can be disruptive.
Moreover, once you have the data what are you going to do with it? Data informs net zero strategies including energy efficiency works and retrofitting buildings. Broadly, a landlord can refuse a renewal under the 54 Act if it plans to demolish the property or carry out substantial construction works which could not be carried out without possession of the property (Ground F).
This means that certain retrofits which are sensible from a carbon perspective may be open to the challenge that they are not sufficiently substantial to meet the Ground F criteria.
It is to be hoped that the 54 Act review will consider how to facilitate landlords’ access to premises for energy efficiency works whilst balancing the need to protect tenants from excessive disruption, whether during the term or on renewal. There is also, of course, the knotty problem of the “split incentive dilemma” – who pays and who benefits from energy efficiency improvements?
This article discusses the 54 Act as the review presents a useful opportunity to add a net zero flavour to commercial leases – but the mechanism to do this is a secondary issue. The government could use other legislation to decarbonise the sector.
However, irrespective of approach, it is key that the 54 Act is revised such that it is sufficiently flexible to accommodate the policy and practical changes required for net zero and climate adaptation – it needs to be future-proofed for the transition.
