With the price of energy on the rise, commercial landlords and tenants may be planning on how to reduce their future energy costs. This will help their tenants stay in business, whilst also ensuring that, they as landlords, are able to meet their obligations under the lease, whilst remaining profitable.
In dealing with such matters, first each party should check their lease, to determine how energy costs are to be dealt with.
- If the lease states that the tenant must pay the energy costs directly to a supplier, they may be able to negotiate better terms and get some protection against future price rises.
- If the landlord arranges the supply, it may be covered as part of an all-inclusive rent, meaning the landlord bears the burden of any increase. In this position, the landlord may seek to renegotiate the lease.
- Alternatively, the tenant may be paying for its energy supply separately, as one of the elements in their service charge. In this case, the service charge may increase to allow the landlord to recover the increased energy costs.
If a landlord is attempting to make energy savings by reducing services such as heating and lighting, they need to ensure that any cost-cutting does not cause them to fall below their minimum legal obligations to provide such services in the lease.
A landlord and tenant may also plan to cut expenditure on other costs. Again, whoever is responsible for these should check their lease to make sure they are legally entitled to make the planned cuts.
Landlords and tenants should particularly consider their respective legal obligations and liabilities in the event of any power cuts. Both should ensure that precautions are taken to prevent damage to premises or equipment that a power cut would cause. The parties will want to ensure that their insurance provides them with the necessary cover and that business interruption insurance should be checked to see if it covers loss of rent in these circumstances.