When it comes to dilapidations, traditionally this has often referred to reinstatement costs for physical alterations. However, there are instances where occupiers make changes that you can’t necessarily see. One example being power capacity.

At present, landlords are facing a serious problem. As standing charges go up and businesses energy requirements potentially decrease due to lower occupancy or reduced production, tenants understandably want to lower their operational cost exposure by reducing the power capacity of their leased asset.

This is becoming an increasingly common issue, with the problem of acquiring power capacity and its subsequent availability only really materialising in the last few years. This has led to significantly higher costs and greater timescales to secure additional capacity. In some instances this is costing landlords hundreds of thousands of pounds and can take more than 10 years to restore.

With this in mind, a number of 10-15 year leases are now coming to an end and many landlords have realised that there is often no contractual recourse when it comes to the cost of reinstating capacity. There is also the potential impact of devaluation, a common occurrence for sites with less power.

How do occupiers pay for power?

Charges are based on the amount of Agreed Supply Capacity (ASC) allocated to the supply Meter Point Administration Number (MPAN). In 2022, the charging methodology changed regarding paying for power capacity. The costs that were attributed to the kWh charges were moved to a fixed cost in line with legislation, meaning the higher the kVA banding the higher the fixed charge for both the cost to serve and the capacity. In theory, this is a positive step and should stop the oversizing of connections. However, inadvertently it means that in many instances occupiers are paying higher fixed costs, and many are then looking to decrease their ASC.

Here lies the issue. As a tenant the capacity is not really theirs to give away, but equally why should they pay for more than they need?

What does this mean for dilapidations?

From a dilapidations perspective, the occupier has control of the MPAN to which the capacity is registered and there is often no clause within the lease requiring them to notify the landlord that they want to reduce the ASC.

So what’s the solution?

Moving forward leases should be drafted requiring tenants to seek landlord approval to amend the power supply levels in the same way they would for physical alterations. This could also mean a potential requirement in a license for capacity to be reinstated back to the original supply levels at the occupiers cost if relevant at lease expiry.

In instances where this has not been accounted for, for example within a historic lease, all parties need to factor in a potential shortfall in power within a dilapidations claim.

Ultimately, the question of who holds the power is now more important than ever. 

Further information

Contact Claire Hood, Phil Pearson or Michael Lock

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