By Legal Futures Associate SearchFlow
Meeting Environmental, Social, and Governance (ESG) standards is now a significant consideration for UK commercial property investors, meaning that compliance will become increasingly important for commercial property law firms in the UK. Unfortunately, an ongoing debate remains about the depth of climate change and the need for energy efficiency reporting. SearchFlow has spoken to some of the UK’s top commercial property law experts to better understand the challenges of climate change compliance for the sector.
Energy efficiency is key
New research has revealed that ESG regulation has increased by 155% in the past ten years, and this is only expected to continue as markets seek better and more transparent ways to achieve sustainability. As Chris George, Real Estate Principal Associate and Innovation Specialist at Shoosmiths, explains, “As things stand, regulations are expected to become stricter. This means improvements in energy efficiency will be essential if businesses want to comply with existing, evolving regulations”.
As of 1st April 2023, landlords who let a commercial property with an EPC rating below ‘E’ will be in breach of MEES (Minimum Energy Efficiency Standard). Portfolio-wide refurbishment strategies will be increasingly important in ensuring compliance with energy efficiency standards. Green lease provisions should also be encouraged to allow landlords to make unilateral improvements to their portfolios. Jonathan Wright, Commercial Property Partner at Knights comments, “These clauses [green lease clauses] are becoming more sophisticated and include increased reporting requirements.”
Key takeaway: Encourage commercial property landlords to develop portfolio-wide refurbishment strategies to meet the MEES.
Focus on improved climate data and reporting
To meet increasing ESG compliance requirements, firms need access to better climate data and modelling. The challenge for the sector is that the scope and accountability for understanding the potential impact of climate change on properties in a portfolio is still unclear. More is needed from regulators in this area. While home buyers and sellers understandably want better climate reporting to protect their financial and legal positions, some law firms are reluctant to provide it proactively. As Jonathan Wright explains, “Like everything, it comes back to more data being available than ever before. In my view, if this can be harnessed so that the data starts to better inform decisions, then we will see much greater change.”
Key takeaway: Ensure that your firm has access to the best quality climate data and models on which you can base your reporting.
Improved training on meeting climate change obligations
In April 2023, the Law Society published its Guidance on the Impact of Climate Change on Solicitors. It reminded Solicitors that they have a legal duty to be aware of the impact and the relevance of climate change and be able to advise clients accordingly. Commercial property Solicitors must adequately consider the risk climate change poses through increased flooding, erosion, drought, subsidence, heat, etc. and report the risks to their clients in commercial terms.
Key takeaway: Implement systems and training to ensure that commercial property Solicitors can provide quality climate reports to their clients.
What next?
For more expert insight for your law firm, please download our free guide – ‘Commercial Real Estate Insights 2024: Planning for a successful future: expert perspectives from legal professionals’.
