It has been reported in Property Week that, according to a new study carried out by Carter Jonas, just 8.3% of UK office space will satisfy new environmental standards set to be enforced by 2030.

As landlords have no choice but to undertake works to improve EPC ratings, could this lead to a new battle ground for dilapidations?

A tenant's liability for dilapidations - the area of law that focuses on breaches relating to the physical state of the building (as discussed in our recent Building Blocks article here) - is regularly an area for debate.

The landlord will assess whether the premises has been left in good repair and condition in accordance with the lease terms, and parties will generally thrash out their differences until (in most cases) a settlement is reached based on the value of cost of remedial works required.

If a settlement is not reached, a landlord will ultimately need to prove it has suffered a loss to bring a dilapidations claim. This may not always be straightforward and statute (section 18(1) Landlord and Tenant Act 1927) places a cap on liability for disrepair.

Under section 18 LTA 1927, the landlord's loss is capped at the diminution in value of the landlord's reversion caused by the breach and could be wiped out entirely if it can be shown that the landlord intends to undertake works to the property such that the repairs claimed would be rendered valueless. 

Arguments raised by a tenant that the landlord's works will supersede the disrepair can therefore be very handy weapon when defending dilapidations claims.

However, section 18 arguments are not commonly pursued, either because they can be highly complex and costly, or because landlords do not always undertake significant works to the property shortly after lease expire which would raise the issue of supersession.

But, if Carter Jonas' report is accurate, this could change. 

Under MEES (minimum energy efficiency standards) regulations, from 1 April 2023, it is unlawful to let a property with an EPC rating below "E" and this is set to rise to "C" by 2030. This is subject to some limited exemptions. 

According to the report, only 31.6% of office stock in the UK is band "C" or better. London and other key cities comprise over 60% of stock which exceeds 30 years of age and 20% of UK stock is considered as being potentially unlettable to many occupiers. 

It follows, therefore, that dilapidations claims could be reduced as a result of landlords being forced to undertake significant works to the property to meet required MEES standards, subject to any exemptions that may apply.

With tenants becoming more demanding of working environments that offer excellent sustainability credentials, landlords' actions will also be dictated by the market and what their tenants expect.

With that in mind, a landlord may be forced to think very soon about how it might meet this demand as well as its statutory obligation. This might also lead a landlord to the conclusion that it will redevelop the property, or even look at ways to deal with disrepair early by undertaking works during the course of the term instead if this is possible (see our guide on the pros/cons of the "Notice To Repair" here).

So whilst tenants may not have historically looked at section 18 very closely, statutory and market forces are converging to put pressure on landlords to carry out potentially significant works, offering a new battleground for dilapidations.