In brief - Lease documents should take a cooperative
approach to green provisions
It is essential that landlords and tenants discuss openly what
the expectation of each party is with respect to environmental
issues and that the lease document contains a co-operative approach
to identifying and dealing with environmental issues and
A green lease should set out each party's
requirements but also allow for flexibility
Both landlords and tenants are increasingly considering
environmental issues as a key ingredient for incorporation into
lease terms and negotiations.
Whilst parties should define the requirements and position of
each party at the outset of the lease, the lease needs to be
flexible to allow for inevitable changes throughout the term of the
lease, particularly brought about by emerging technologies and
trends for dealing with environmental issues.
Green leases have benefits for both landlord and
In September 2012, the Council of Australian Governments issued
the Green Lease Handbook which is meant to assist parties
in considering environmental matters relating to the leasing of
It is quite clear that having regard to environmental issues in
the context of leasing obligations can lead to economic benefits
for both the lessor and the lessee, as well as enhancing the
corporate image of those parties by boosting their environmental
How do you monitor and measure environmental
One of the essential ingredients the parties need to consider is
benchmarking and what the appropriate measures are that need to be
adopted for measuring the achievement of environmental
Essential to having effective green lease provisions is
co-operation between the landlord and the tenant to work towards
common goals, with flexibility as to both outcomes and timeframes
to allow for changes in circumstances.
An effective green lease provision needs to ensure that there is
open and frank communication and sharing of information by the
parties and co-operation with respect to monitoring and reporting
and, where necessary, external assessment of outcomes.
Who pays for environmental provisions in a green
Obviously, introducing green initiatives costs money. The
landlord needs to discuss the allocation of the costs frankly. To a
degree this allocation relates to the expected benefits to each
For the landlord, the benefits are that the costs of operating
the building are reduced, the building is more attractive to
tenants and the landlord's reputation and the desirability of
its product are enhanced in the marketplace.
For the tenant, the benefits are the enhancement of its
reputation in terms of corporate social responsibility, the
provision of a better working environment with resulting better
morale amongst staff and a reduction in building outgoings,
potentially leading to reduced fees payable by the tenant.
Collaborative approach to achieving green
In negotiating green lease provisions, both parties must be
cognisant of the fact that the non-achievement of green lease
provision targets should not be tantamount to a normal breach of
lease leading to termination or other draconian effects.
There should at least be notice and some sort of collaborative
approach to resolve any non-achievement of green targets, with some
form of mediation then being embarked upon.
Landlords particularly motivated to include green
provisions in leases
Influencing the trend towards green lease provisions on the part
of the landlord are the following factors:
Some tenants (particularly government departments) will not
lease premises which do not meet certain green targets.
Under the Building Energy Efficiency Disclosure Act, sellers and
landlords of commercial properties of at least 2,000m˛ are
obliged to disclose NABERS energy ratings when offering the
premises for sale or lease.
Both landlords and tenants are focused on reducing costs,
particularly perceived increased costs by virtue of the
introduction of the Australian carbon pricing mechanism from 1 July
Focus on specific aspects of building usage in green
The most commonly targeted areas for trying to achieve
efficiencies are the following:
reusing materials or using recycled materials
reduction in emissions
Both parties need to give thought as to what type of rating
mechanism should be used, and whether the
NABERS system or the voluntary Green Star system (or
both) may be appropriate.
Green leases can enhance landlord/tenant relationship
and boost reputations
Consideration of green lease provisions is an emerging and
increasing trend. Focusing on a collaborative approach is what
serves the parties best in negotiating and implementing provisions
of this type.
The outcomes will enhance not only the relationship but also the
reputation (both internally and externally) of landlords and
In this quarterly Alert, Meryl Snow and Craig Willey highlight the key areas of interest for landlords and tenants.
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