UK ESG Real Estate Update - Summer 2025

As you will have undoubtedly seen in the national press, and as we have previously written about, nutrient neutrality has been something of a hot topic when it comes to house building in the last few years, resulting in a hurdle to development in some parts of the UK. Hoping to address these concerns, the Planning and Infrastructure Bill proposes the introduction of the Nature Restoration Fund (the Fund).

How will the Fund work?

Natural England are to administer the Fund through Environmental Delivery Plans (EDPs), which will apply to specific geographic areas. Each EDP will set out details of the strategic “conservation measures” it will take to:

• address the environmental impact specified types of development will have on any protected sites or species; and
• enhance the conservation status of the site and/or species.

What might these measures look like?

Examples of such measures can include a requirement for Natural England to request that planning permission granted for certain types of development is only granted where it is subject to certain planning conditions, for example requiring a development to achieve a certain standard of water efficiency.

How does it work for developers?

Where a development might impact on an environmental feature, before that development commences, a developer can request to pay the nature restoration levy. An EDP will include details of the applicable charging schedule, setting out the amount of the nature restoration levy which is to paid, and this is then to be used to cover the costs of the conservation measures. The Bill says that, where the developer pays into the Fund, the environmental impact of their proposed development on relevant protected features is disregarded for the purpose of certain statutory regimes.

Where use of the Fund might not be appropriate

EDPs can specify areas where development is excluded from the ability to benefit from the right to provide mitigation via the Fund, for example where only onsite measures would be appropriate.

The government has been keen to stress that this approach will not reduce environmental protections. To ensure this, first, before an EDP is adopted, it must pass an overall improvement test, demonstrating that the conservation measures proposed are likely to be sufficient to outweigh the negative effect caused by the environmental impact of development on the conservation status of each identified environmental feature. It is hoped that whilst easing the burden on development, Natural England will be able to deliver more meaningful change, at a greater scale.

Our Planning team are keeping a close eye on the Bill as it passes through the Lords, please do reach out to your usual contact if you have any questions.

The Landlord and Tenant Act 1954 provides certain tenants of business premises with a right to renew their lease upon expiry.

In recent years, a point of contention in renewals has related to the inclusion of green lease clauses. Many landlords will have standard green lease clauses which they will want to include in any 1954 Act renewal.

As to what terms will be included in any renewal lease, the starting point is section 35 of the 1954 Act which makes clear that in the absence of agreement, other terms are to “be determined by the court; and in determining those terms the court shall have regard to the terms of the current tenancy and to all relevant circumstances”. Subsequent case law has made clear that the burden is upon the party proposing the change to persuade the court that the change is fair and reasonable.

A number of other general principles emerge from the case law, including the following:

• the fact that something has become market standard is not irrelevant, but also is only one factor the court will have regard to.
• the courts have also made clear that the court will not seek to “petrify” the terms of a lease.

Such principles are subject to an overriding question: whether the proposed change can be justified on the grounds of essential fairness.

So, with that in mind, how will a court faced with typical green lease clauses deal with the same? Let's look at three common examples:

Data sharing

Data sharing clauses are becoming market standard, which is a relevant consideration but not determinative. Given that the courts have made clear that they will not ‘petrify' a lease, to the extent that certain data sharing is essential for landlords and tenants for reporting and other purposes, then it could be argued that this clause is necessary to avoid the lease becoming deficient, given the widespread ESG related reporting requirements being demanded by many stakeholders.

That said, there is a risk that if a landlord is seeking to impose extensive one-sided data sharing obligations on tenants, the court may resist ordering inclusion of those terms if the tenant is able to show that compliance with such clauses would impose a significant additional burden on the tenant. In reality, most data sharing clauses will be mutually beneficial, so it will usually be possible to negotiate an acceptable clause.

Rights of the landlord in connection with Minimum Energy Efficiency Standard (MEES)

The introduction of MEES regulations represents a sea change in the law, with the result that landlords are under additional legal obligations which require them, in certain circumstances, to carry out works to premises whilst a tenant is in occupation. As a result, to the extent that changes to leases are required in order to allow the landlord to comply with its legal obligations, and the existing lease does not provide the landlord with necessary rights to comply with those MEES obligations, these are likely to be allowed by a court relying on the overall principle of essential fairness.

However, to the extent that a landlord seeks to impose MEES related obligations which try to require the tenant to pay for any MEES improvement works, this may well be refused by a court, given that MEES are meant to be the landlord's responsibility.

Alterations

A landlord may want to impose various restrictions on a tenant's ability to carry out alterations which will reduce the EPC rating of a property.

Whilst this would seem to be a reasonable and fair restriction, the County Court decision in Clipper Logistics Plc v Scottish Equitable Plc is interesting. In that case the court refused to order the inclusion of a term that would restrict a tenant's ability to carry out alterations which would reduce the EPC rating of the property. The court's reasoning for this was that the landlord would be able to reasonably refuse consent to the alterations, using the existing alterations provisions in the lease, if the result of the alterations would be that the EPC rating would worsen. As a result, the court considered an express clause prohibiting alterations that worsened the EPC rating to be unnecessary.

The Law Commission is currently consulting upon the 1954 Act, and whilst the Law Commission has indicated that there will not be any radical change to the scope of the 1954 Act, there is a second part to the consultation which is looking at the detail of the 1954 Act. We will wait to see whether that consultation extends to issues relating to the inclusion of green lease clauses.

The practical application of The Energy Performance of Buildings (England and Wales) Regulations 2012 (“EPB Regulations”) and The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (“MEES Regulations”) can be a minefield. Below are some FAQs to assist with your transactions:

Q: I have noticed an EPC has expired. When do I need to get a new one?

A: Broadly, triggers for commissioning a new EPC where there is no existing valid one are:

• a letting (including an occupier subletting)
• a sale (including an occupier assigning its leasehold interest)
• completion of certain types of works

This may be changing soon – see our previous update (attached to this one). 

Q: Do I need to provide an EPC to a tenant on a lease renewal?

A: There is a conflict between the EPB Regulations and different Government guidance. The EPB Regulations do not make an exception for renewals (despite the rationale for providing an EPC to an occupier being to allow prospective tenants to make an informed choice on the property). According to the Government's EPC Guidance “not all transactions will be considered to be a sale or let. These will include… lease renewals or extensions”, whereas the Non-Domestic MEES Guidance states “the landlord will…be required to obtain a new EPC …if they intend to re-let the property (to the current tenant, or to a new tenant).”

Given this conflicting guidance, the safest approach is to adopt the position in the EPB Regulations and an EPC will need to be provided to a tenant on a lease renewal.

Q: Does a continuation of a 1954 Act protected tenancy trigger the need to produce a valid EPC to the tenant?

A: No, because the EPB Regulations confirm that an EPC must be provided to a tenant where a property is “to be…rented out”.

Q: Can a landlord refuse consent to a 1954 Act renewal if a property is “substandard” so the letting would breach the MEES Regulations?

A: No – the landlord may not refuse consent and (in the absence of an exemption) the letting will be a breach of the MEES Regulations (although a temporary six-month exemption will be available to the landlord for the grant of a lease of a substandard property under the 1954 Act).

Q: Does an EPC need to be provided to a tenant on a lease of a shell and core premises?

A: Yes (and, in the absence of the services being installed at the property, will be assumed to be the most energy intensive fit-out which will yield a poorer EPC). Once the tenant has completed its fit out, a new EPC should be commissioned which will likely be an improved rating.

Q: I am acting on the sale of shares in a company that owns a property. Do I need to provide an EPC to the Buyer in this scenario?

A: The EPB Regulations require an EPC be provided to a Buyer “where a building is to be sold…”, so no. However:

• EPC Guidance (not law) limits this to situations “where buildings remain in company ownership”
• there may be other parties involved in the transaction (e.g. a lender) that require EPCs

As such, unless there is a good reason not to commission EPC, it is best practice to have a valid EPC for the property in this scenario.

Q: Do I need an EPC for every floor of a building, or can we use one for the whole building?

A: It depends on the property, but the general rule is:

• if there is a common heating system – you can use the EPC of the whole building where the whole or part of the building is sold/let (but EPCs of part can be used if preferable)
• if there is an independent heating system for a floor/unit - can only use an EPC of the whole building where the entire building is sold/let. Otherwise, you would need an EPC for each floor/unit

Q: What are the rules with listed buildings? Surely they cannot be subject to MEES?

A: Listed buildings are only exempt from the need for an EPC (and thus be subject to MEES) “in so far as compliance with certain minimum energy performance requirements would unacceptably alter their character or appearance”. A recent consultation has indicated the Government may change the EPB Regulations to require all listed buildings to have an EPC, and then landlords would need to look to possible exemptions under the MEES Regulations if those listed properties were substandard.