Simon Keen considers how alterations might affect a building’s BREEAM rating whilst Dellah Gilbert explains the current position in relation to guarantors.

Q. I am the owner of a newly constructed building which has been awarded an “excellent” BREEAM rating. The building is about to be let and I am worried that the tenant might subsequently carry out works which inadvertently affect the BREEAM rating. Is that possible?

A. As always, it depends. There are two different types of BREEAM rating: a “New Construction” rating, which can be awarded when a building is newly built; and an “In Use” rating which can be awarded when a building is occupied. Once a BREEAM New Construction rating has been awarded it cannot be lost; subsequent works carried out by a tenant will not have any impact on it.

However, works carried out to a building can affect the level of an In Use rating. A BREEAM In Use certificate only certifies that a building meets a certain standard at a particular point in time so, if works are done that would cause it to fall short of that standard, the certificate becomes inaccurate and can no longer be relied upon. For instance, a building that was initially constructed with a particular heating system and achieved an “excellent” In Use rating, could subsequently undergo works that include the substitution of that heating system with one that scores less well under BREEAM. This might mean that the building no longer has an “excellent” rating but instead a “very good” rating.

Despite this, there is no obligation to obtain a new certificate with a new rating; it is a question of choice. If you were planning to sell the building and wanted to advertise it with a BREEAM “excellent” rating, you would need a new certificate to ensure that the rating remained accurate to avoid a misrepresentation. You could, though, offer the building for sale and say that it was “excellent” rated when constructed and then disclose the detail of the subsequent works, to allow a buyer to make up its own mind on their impact and avoid you having to obtain a new certificate.

If, when the time comes, you just intend to offer the building for sale and do not wish to make any mention of what BREEAM rating it has had or might achieve then you can do so as there is no obligation to obtain a new BREEAM certificate at all.

Whilst a BREEAM In Use rating can change, a BREEAM New Construction rating will not, even if the In Use rating changes. Buildings with a New Construction rating of “excellent” or “outstanding” used to have to achieve particular In Use ratings at regular inspections but this is no longer the case. Whether the landlord considers the In Use rating to be important may well depend on the landlord’s commercial agenda: some landlords believe that it makes commercial sense to insist that the Excellent In Use standard is maintained whilst others take a more relaxed view.

Q: What is the position with regard to guarantors of leases following the Court of Appeal’s, decision in K/S Victoria Street v House of Fraser1?

A: If depends on whether the lease being guaranteed is “old” (pre-1996) or “new” (post-1996) for the purposes of the Landlord and Tenant (Covenants) Act 1995.

For “old” leases, the legal position is unaffected.

For “new” leases, the legal position is as follows:

  1. When the lease is assigned, the guarantor is released to the same extent as the outgoing tenant.
  2. The Court of Appeal has opined (obiter) that, as the outgoing tenant can be called upon to provide the landlord with an Authorised Guarantee Agreement (AGA), its guarantor can act as guarantor of the AGA.
  3. The outgoing tenant’s guarantor cannot be required, as a condition of the landlord giving its consent to an assignment, to provide a fresh guarantee of the immediate incoming assignee’s obligations. This will be void and unenforceable.
  4. The Court of Appeal has opined (obiter) that this also means a guarantee given voluntarily of the immediate incoming assignee’s obligations will also be void. However, it considers the guarantor would be free to guarantee the obligations of a later incoming assignee.
  5. The Court of Appeal also suggests that a tenant’s guarantor cannot take an assignment of the lease from that tenant.

The obiter parts of the judgment should be viewed as strong guidance only. It remains to be seen whether any of the guidance will be challenged in due course.