Legal update
served. If the length of the breach has been less than three months, then the maximum penalty for a non-domestic PR property is the greater of (a) £5,000 or (b) 10 per cent of the rateable value of the property at the date of service of the penalty notice up to a maximum of £50,000. If the length of the breach of the regulations is three months or more then the penalty is increased to a maximum of (a) £10,000 or (b) 20 per cent of the rateable value of the property at the date of service of the penalty notice up to a maximum of £150,000.
As far as the publication penalty is
concerned, the enforcement authority can decide how long the public part of the penalty notice remains published and there seems to be no requirement in the MEES regulations for the enforcement authority to be reasonable regarding the length of time for which the publication appears, nor does it have to lay out a process by which the care home operator can request or seek removal of the published information.
Other considerations
There are other important aspects of the MEES regulations which will impact on the relationship of landlord and tenant where a care home is subject to a commercial lease. Firstly, one needs to consider the rent review provisions. Most commercial leases include an assumption on a rent review that the hypothetical lease can be granted lawfully. If no such assumption is included in the lease rent review clause, then in theory on a rent review, the expert determining the level of the new rent could have regard to the fact that the open market value of the rent is effectively negligible or nil, as the property cannot be let lawfully. From a landlord’s perspective, it is therefore essential that an assumption is included that clearly ignores any downward effect on the rental value.
A further important point relates to any dilapidations claims on a lease coming to an end. At the end of most commercial leases, it is common for landlords to serve a dilapidations schedule on the tenant, claiming a breach of the repairing and requiring either that the tenant carries out the repair works to the property or pays damages in lieu. If, however, a landlord is proposing to carry out substantial works to the building in order to bring a sub- standard building up to an EPC level of E or above, then the outgoing tenant might argue that there should be no dilapidations claim because the landlord’s energy
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The owner of a care home where there is a lease in place should consider what amendments might be needed to their letting document
efficiency improvement works will render any dilapidations claim obsolete. The owner of a care home where there is a lease in place should consider what amendments might be needed to their standard letting document. Firstly, there should be provisions in the lease which allow the landlord easily to make and carry out energy efficiency improvement works. Amendments will be needed to decide how the costs of carrying out those works are to be allocated.
Some leases already include
provisions which seek to prevent a tenant independently obtaining an EPC report which might turn out to have a lower, sub- standard rating. A commercial lease of a care home should contain a clause that deals with this process so that there is at least some control given to the landlord, should a tenant wish to have an EPC carried out. It is also possible to seek a repairing obligation in the lease where the tenant should carry out energy efficiency improvement works (not just the usual line of repair works to the building) where these will be needed to lift the EPC rating into the non-sub-standard range of E and above. Landlords should be granted an easement ie, a right of entry to go into the care home to carry out energy efficiency improvement works where necessary, as well as an obligation on the tenant to pay the cost of the energy efficiency improvements. There may well be a commercial impact on market rents of such lease obligations, because tenants are likely to seek a lower rent if asked to sign a lease where the tenant knows that there will be or might be significant tenant expenditure in terms of carrying out expensive energy efficiency improvement works.
Let sleeping dogs lie? Some care home owners might be minded simply to ‘let sleeping dogs lie’ because they do not have any occupational lease in place, or because of a fear of having to find funds to carry out energy efficiency improvement
works. This is likely to prove a false economy. The government has suggested in its briefing papers that it is likely to review the minimum EPC rating of E in future years. Its clear intention is to raise these to a B rating by April 2030, with a possible staged implementation requiring a C rating by 2027. In practice, many homes might struggle to achieve a B rating, especially those care homes which are, for example, old converted Victorian buildings, which are inherently far less energy efficient than say a new build or recently constructed purpose-built care home. Another reason why care home
operators should not ignore these regulations is that their funders will not. On sales of care home businesses or groups, or on re-mortgaging of a care home business, lenders will need and want to see up to date EPC reports. If a care home has an EPC within category F or G, this could well affect the lender’s valuation for security purposes. This is because, if the lender is ever forced dispose of the care home as a mortgagee in possession, its options might be adversely affected by poor EPC ratings. Care home owners should act now and take professional advice from a suitably qualified energy efficiency surveyor.
Disclaimer The above article is not intended as legal advice and must not be relied upon as such.
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Tom Lumsden
Tom Lumsden is a partner at CooperBurnett LLP in Tunbridge Wells, specialising in commercial property. He has particular expertise in the sale and purchase of care homes, including acquiring land for care home developments.
www.thecarehomeenvironment.com April 2023
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