Energy label C obligation in commercial lease relationships

From 1 January 2023, office buildings must have an energy label of at least level C. Office buildings that do not yet have an energy label C or better must be made more sustainable. Depending on the current energy label, sustainabilization can be expensive. In commercial lease relationships, this raises the question who is responsible for such sustainabilization.

There is no generic answer to this question. In principle, the relationship between the tenant and the landlord is determined by the content of the lease agreement in place. Most commercial lease agreements are based on one of the models of the Real Estate Council of the Netherlands (ROZ). In this blog, we therefore address the above-mentioned question in light of these ROZ model agreements.

The energy label C obligation

The energy label C obligation for office buildings arises from article 5.11 of the Building Decree 2012. ‘Office building’ is understood to mean a building with a functional use for administration (and associated ancillary functions). Some office buildings are exempt from the energy label C obligation. For example, this obligation does not apply to a mixed building with subordinate office functions (<50% office function of the total usable surface), small office buildings (<100 sq. m. total usable surface) and national monuments. In addition, a lighter regime applies if the measures that must be taken have a payback period of more than ten years.

The energy label C obligation means that the office building must have an energy label with an energy index of 1.3 or lower with effect from 1 January 2023. If the energy index is higher, energy-saving measures must be taken, such as insulating or installing solar panels. Taking these measures can of course be time-consuming and expensive.

If an office building does not yet have an energy label C on 1 January 2023, it is prohibited under article 5.11 of the Building Decree 2012 to use that office building. When the office building is nevertheless used, there is a risk of administrative enforcement. In literature, it is argued that the owner of the office building is liable under public law for the lack of an energy label C. Whatever the case, when the office building cannot be used, both the tenant and the landlord have serious problems.  

Energy label C obligation and current leases

In most existing commercial lease relationships, the tenant and the landlord have contracted on the bases of a ROZ-model (a model lease agreement with associated general conditions). The most recent version for office space (from 2015) dates from before the introduction of the present energy label C obligation. Therefore, existing lease agreements generally do not contain specific arrangements on taking and financing energy-saving measures for the purposes of obtaining and maintaining an energy label C.

The (more general) provisions of the lease agreement and statutory regulations must be relied upon when the tenant and the landlord have not made additional arrangements on taking energy-saving measures. These (more general) provisions and regulations contain various provisions on the use, destination and maintenance of the leased property, under which the taking and financing of energy-saving measures for an energy label C can be ranked. However, these provisions leave a lot of room for discussion about the division of responsibility and the costs of energy-saving measures.   

There is also no unequivocal answer to the question whether non-compliance with the energy label C obligation constitutes a defect within the meaning of article 7:204 of the Dutch Civil Code. This will depend on the circumstances of the case, including the content of the lease agreement and the nature of the energy-saving measures yet to be taken.

There is no case law yet on this issue and therefore no guidance on whether the tenant or the landlord is – in principle – responsible for taking and financing energy-saving measures. In order to avoid difficult discussions, the tenant and the landlord would do well to make arrangements in due time. 

The ROZ model energy label provisions

Since 2019, the ROZ has provided model energy label provisions that can be used in new lease agreements or riders to existing lease agreements. In this regard, a distinction is made between two options.

Option 1 relates to office buildings that already have an energy label C or better. Pursuant to this option, parties undertake to apply recognized energy-saving measures in the event of alterations, maintenance, repair or renewal of the leased property. In this way, future stricter laws and regulations are anticipated.

Option 2 relates to office buildings that do not (yet) have an energy label C or better. Pursuant to this option, parties undertake to jointly determine who will take which energy-saving measures in order to obtain the energy label C. The basis principle is that the tenant takes the measures that pertain to the furnishing and use of the leased property and the landlord those that pertain to the shell of the leased property, although parties are free to deviate from this principle. Once the energy label C has been obtained, parties commit themselves (again) to apply recognized energy-saving measures in the event of alterations, maintenance, repair or renewal of the leased property in order to accelerate the achievement of an (even) better energy label.

In addition to both option 1 and option 2, an arrangement is provided for the situation in which the required energy label has not yet been obtained one year before the energy label C must be obtained (i.e. 1 year before 1 January 2023). In that case, parties will consult on the energy-saving measures to be taken. The costs of these measures are in principle divided between the parties when the tenant has to take the necessary measures pursuant to the ROZ general conditions. If the landlord has to take the necessary measures pursuant to the ROZ general conditions, the landlord will indicate which rent increase will be implemented, based on the principle of any advantages that the tenant enjoys in the form of lower energy costs. If parties do not reach agreement in time, the landlord has the right to terminate the lease agreement prematurely. If the lease agreement ends and energy-saving measures have been taken less than five years ago, parties will consult on compensation.

Proper and timely arrangements are important

Energy labels have become an important point of attention in both existing and new lease relationships. From 1 January 2023, office buildings may in principle no longer be used without the required energy label C (or better). Obtaining such an energy label can entail substantial costs. The landlord and the tenant would therefore do well to make proper and timely arrangements on obtaining the required energy label. The ROZ’s model energy label provisions can serve as a starting point for such arrangements.