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Commercial›Costs›Service charge
Who pays

Service charge, dilapidations and the split incentive

The landlord carries the regulatory duty and the capital cost. The tenant pays the energy bill and banks the saving. Almost every stalled commercial MEES project stalls here.

The split incentive

Under a typical full repairing and insuring lease the tenant pays for energy. The landlord holds the MEES duty and must fund the works. The measure that pays back in four years pays back to the tenant, while the landlord funds it and waits for a rent review or a sale to recover any of it.

Pointing this out does not solve it, but naming it does change the conversation with an occupier – because the saving being discussed is theirs.

Can you recover it?

Routes to recovering upgrade cost from occupiers
RouteWhen it worksWhen it does not
Service chargeLease expressly permits improvements, or contains a statutory-compliance or sustainability provisionOlder leases limited to repair and maintenance – efficiency works are usually improvement
DilapidationsThe works genuinely remedy a breach of the tenant's covenantsRegulatory upgrading of a building in repair. Section 18(1) caps the claim at diminution in the reversion
Rent reviewImproved building supports a higher rent on reviewWhere the review disregards voluntary landlord improvements – check the disregards
Green lease clauseNegotiated at grant or renewal; shares cost and savingCannot be imposed on a subsisting lease
Re-gearTenant wants term certain; landlord wants the works done – trade themWhere the tenant has no reason to come to the table

Access is a separate problem from cost

Even where you are funding the work yourself, you may not be entitled to enter the demise to do it. Rights of entry are a matter for the reservations in the lease, and a right to enter to repair does not necessarily extend to entering to improve.

Where the tenant refuses, that refusal – properly sought and in writing – is the foundation of a consent exemption. Which is why a refusal should be documented rather than treated as the end of the matter.

What actually works

  1. Read the lease before the survey. The recoverability answer changes which measures are worth specifying.
  2. Take the measures that need no access first – plant, roof, envelope, controls in landlord areas.
  3. Time the rest to a lease event. A void is the cheapest access you will ever get, and it is the reason our plans are built around lease dates rather than deadlines.
  4. Put sustainability provisions into every new lease and renewal, even where you cannot fix the existing ones.
  5. Ask, in writing, and keep the answer. Either you get the access, or you get the exemption.

Sequence the work around your lease events

The Upgrade Plan places each measure at the break, expiry or refurbishment date where it can actually be done – and shows what it costs to do it earlier.

Common questions

Can I recover MEES upgrade costs through the service charge?

It depends entirely on the lease. Many older commercial leases permit repair and maintenance but not improvement, and energy efficiency works are frequently improvement. Some modern leases include an express sustainability or statutory compliance provision.

Can I recover the cost through dilapidations?

Only where the works are genuinely remedying a breach of the tenant's covenants. Upgrading a compliant-but-inefficient building to meet MEES is the landlord's regulatory burden, not a dilapidations item – and section 18(1) of the Landlord and Tenant Act 1927 caps a claim at the diminution in the value of the reversion.

Who pays if the tenant benefits from the energy saving?

This is the central unfairness of the regime as drafted: the landlord bears the capital cost and the tenant banks the saving. Green lease clauses exist to share it, but they have to be negotiated in.

Sources

Legislation is cited to the version in force at the date below. We publish a corrections policy and amend pages when the law changes.

Written and reviewed by the evenEco assessment team Last updated Figures from the GOV.UK Energy Performance of Buildings Register, non-domestic extract for England & Wales, analysed 11 September 2026 How we produce this