UK: The "Green" Lease

How Concerns About Sustainability Are Being Reflected In Contractual Arrangement
Last Updated: 10 July 2008
Article by Linda Fletcher

What is this?

In our last Alert we looked at how legislation is changing the way buildings are constructed, particularly in relation to the standards that are expected and the information that is to be provided about energy efficiency, for example the EPC requirement. Whether you are a developer, owner or occupier of real estate you need to be aware of these changes. In Part Two of this series we examine how concerns about sustainability are being reflected in the contractual arrangements between owners and occupiers and what you should be asking for or be prepared to offer in this respect. You have probably already started to hear reference to the "green" lease, being really an extension of the use of what is now familiar jargon such as "green" energy, "green" buildings, "green" products etc.

Essentially it is a reflection of the commitment of both the owner and the occupiers of commercial buildings to create an efficient, cost effective and sustainable workplace. It is not simply the inclusion of provisions in a lease whereby the parties accept additional responsibilities for the operation and use of a building.

Global experience

In Australia the green lease has been around since September 2006 with templates for green lease schedules having been produced for use in lease transactions involving government agencies or bodies1 The green lease schedule is stated to be part of the Australian Government's policy to reduce the environmental effect of its operations, and by so doing, to lead the community by example. The schedules contain mutual obligations for tenants and owners of office buildings to achieve efficiency targets and set a minimum ongoing operational building energy standard and address the issue that buildings can operate well below their design energy efficiency standard without regular assessment and review. Standard clauses are provided concerning energy performance rating, separate metering, a building management committee who meet regularly to share information, data and possible new measures, an energy management plan and a disputes and remedies clause. Eight green lease schedules have been designed for use in a variety of different lease arrangements.

The CBI Task Force on Climate Change noted that this is an issue on which government, business and the consumer all have a role to play. Government agencies should certainly be taking a leading role in reducing emissions from its buildings. However, the figures for the UK Government's management of its own buildings do not support this. The Commons Public Account Committee report in December 2007 that only 9% of refurbishment projects met required environmental standards.

Additionally only 35% of new builds and 18% of major refurbishment projects were environmentally assessed, even though this is meant to be mandatory under the changes to the building regulations which we discussed in our last Alert. A number of other countries are also adopting green leases – for example Canada is working on developing a green lease precedent model as is Sweden and other Nordic countries. The UK has traditionally used voluntary codes to change lease practices, but with little success and has, for example, threatened many times to make the Code for Business Leasing Premises mandatory.

Relevant Lease Provisions

As already stated a 'green lease' does not mean simply changing the words in a few lease provisions. What is really required is a change in the culture and behaviour of all the parties involved in relation to the operation and use of a building so that there is a real 'buy-in' to maximizing the efficiency and minimizing the impact of that building on the environment. This is not the usual cost-benefit analysis. That said for this new relationship to work there will need to be changes to the fundamental wording of a lease.

You will start to see (and we already have) new provisions in leases whereby the landlord is required to manage the property not only in accordance with the principles of good estate management but also sustainable management. The detail in service charge schedules and definitions of building operating costs will all need to be discussed and considered carefully by both owner and occupier to make sure both parties are satisfied that the costs that can be recovered to reflect the agreed objectives and ultimately will assist in lowering the operating costs of the building. Similarly if you are a landlord you should be requiring the tenant to also behave responsibly. You can therefore expect to see environmental commitments being imposed on tenants as well. It is, after all, ultimately the building's users and their policies on energy consumption, water usage and waste which will have an effect on the environment. There is little point in designing an energy-efficient and sustainable building unless that technology is then used in the way it was intended.

As a tenant you should ask to see, or expect to be given, in the marketing pack, details of the building management system which will need to include, amongst other things, the energy systems (lighting, heating and cooling) used in the building, the facilities provided for waste collection and, in particular, separate collections to encourage segregation of waste and water conservation systems, for example, simple things such as spray taps. Such a manual, in the same way as the health and safety manual for a building, will need to reviewed and updated during the life of the building.

In multi-tenanted buildings will you, as a landlord, need to install separate meters for each tenant, so the service charge can reflect actual use by a tenant rather than by floor area occupied compared to the whole, so as to incentivise tenants to also take steps to minimise their energy requirements and water use? If this is going to be the norm then developers should be factoring this into the design plans now for their new office and other commercial buildings. Or will there be a unified building management system, so that all tenants need to be encouraged to reduce their energy use so as to reduce consumption for the building as a whole?

An energy management plan should also be developed which will provide information to assist tenants in deciding what simple steps they can take to reduce their energy usage and perhaps including obligations on each tenant to take such steps. It can also provide information on the sourcing of office equipment and materials for fit-outs.

As a tenant you can also expect to see changes relating to your rights as an occupier to carry out alterations. Are you as a tenant planning a major fit-out and will it be reasonable for your landlord to refuse its consent if your proposals do not include the use of recycled materials or the installation of energy-efficient appliances where economically feasible? You would be advised to reflect these concerns by including express wording at the start of a lease rather than leaving it to interpretation at the time of what is meant by or included within the words "acting reasonably". Can this be extended over time so that the landlord can impose requirements as to the sourcing of office equipment and materials used for fit outs?

As the owner of the building you will also want to ensure that any alterations do not adversely affect the energy performance of the building. As the occupier you should consider carving out of the reinstatement provisions that will bite at the end of the lease any works that have been carried out to improve the energy-efficiency of the premises and/or the building.

Should you, as the occupier, be requiring the landlord to achieve/maintain a specific energy rating throughout the term and even including obligations that the landlord has to carry out the EPC recommendations? If so how are such costs to be recovered and to be shared amongst the other tenants in the building? As an occupier are you prepared to accept that these costs form part of the service charge on the basis that you will, in the long term, benefit from reducing energy costs resulting from those works? You could also require that any repairs which the landlord is required to carry out under the repairing covenant are carried out so as to improve energy efficiency, be it modifying the plant or ensuring such plant operates at maximum efficiency.

Rights of access for energy assessors to enable the issuing of EPCs will also begin to appear in leases although, as we saw in our last Alert, the 2007 Regulations do impose a duty on those in occupation of a building to allow access. Consider though if you as an occupier are assigning your lease and your space is designed so it can be used separately from the whole of the building and has separate services, then the duty to provide the EPC on that assignment falls on you. As a result you will need access to information about the building so you can indeed comply with your obligation to provide an EPC.

Are you as the landlord able to recover the costs of providing any EPCs for the building via the service charge and when is it reasonable to do so? If you are selling your interest in the building then there is a strong argument that you should bear this cost. Alternatively parties could agree to share the costs. As an occupier you will also be concerned to make sure that if the need for an EPC has been triggered by another occupier in the building, you do not have to pay a proportion of the cost of providing that EPC. For residential dwellings the costs of providing an EPC have been in the region of £300 to £500 so forcommercial buildings you can expect this to be much greater and we have even seen suggestions of £10,000 being a possible cost for large commercial buildings. So you can expect to see specific and express wording in leases to allow, or, in some cases, not allow, this cost to be recovered.

When looking at the terms of the hypothetical lease as part of the rent review clause in a lease you can now expect there to be a discussion about whether this should include a new assumption that the building has an 'A'/'A+' energy asset rating in order, from a Landlord's perspective at least, to argue for a higher rent on review. As to the rentalisation of "green" improvements the treatment may vary depending on who carried out the works.

Benchmarking and other tools

There are a number of tools being developed to help owners, occupiers and managers assess, analyse and then look at steps to improve the energy efficiency of buildings. It is, of course, harder with existing buildings to achieve these aims but during any refurbishment projects by the owner or fit outs by individual occupiers this should then form an integral part of the design of such works.

The British Property Federation ("BPF") together with the Usable Buildings Trust, with funding from the Carbon Trust, have developed a tool known as the Landlord's Energy Statement ("LES") to assist landlords and managers of office buildings to understand and recognise the energy used in a building in providing communal services. It will also identify areas of improvement and provide comparisons against other similar buildings with similar uses. Companies such as Land Securities plc, Hammerson plc and Standard Life are now using this tool for some or all of their office buildings. The BPF are also aiming to launch in late spring/early summer of 2008 a tenant's energy review tool ("TER") to assist tenants in measuring, monitoring and benchmarking their energy use and resulting CO2 emissions, with the idea being that when taken with their share of the LES for the building they will be able to calculate their total carbon footprint. This is being developed by the BPF, the British Council for Offices, the Chartered Institution of Building Services

Engineers and the Usable Buildings Trust, again with funding from the Carbon Trust.

The Investment Property Databank, in association with CBRE, Barclays and Bureau Veritas, launched an international "Environment Code" in February this year for measuring the environmental performance of buildings to assist in the monitoring and comparison of performance of buildings in terms of energy, water consumption and waste produced so as to facilitate informed decisions about which buildings to occupy and then how to manage operations at such buildings. Its aim is to provide a single international benchmark to assess how buildings affect the environment and so assist owners and occupiers of corporate property; i.e. corporate occupiers can assess their global environmental impact.

The IPD Environment Code includes an interesting statement as follows:

"It is important to measure the total environmental impact of buildings and the Environment Code is directly relevant to building owners, managers and tenants who wish to collaborate to ensure that their

buildings perform in totality – not just the areas for which they are responsible" and this sums up very well the concept behind a "green" lease.

Other benefits

Green leases will to a certain extent offer the same benefits for both landlords and tenants. It will be important to branding and corporate image and there is evidence2 that green buildings lead to higher worker productivity and a pride in the building itself, there will be lower operating costs and, for owners, a higher demand for such a building can be expected to lead to higher valuations.

In addition and whether you are a developer, owner or occupier you need to be mindful of the duties on directors under the Companies Act 2006 which stipulates that although the directors are required to promote the success of the company in dong so the directors must "have regard to the impact of the Company's operations on the community and the environment".

We see this being reflected in companies CSR statement/report as part of its annual report and accounts and the benchmark tools we refer to earlier can be used to assist in the reporting of your environmental performance. Investors, customers and your own employees will increasingly be asking what your organisation is doing to reduce greenhouse gas emissions. Your real estate ownership and use should simply be part of a comprehensive approach to sustainability.

What next?

Managers of buildings will need to demonstrate an understanding of the legal regime and be able to offer skills in effectively managing energy, water and waste (minimisation and disposal) as an integrated service to assist in meeting both the property owner and occupiers' requirements for a sustainable and energy-efficient building. For it to be a true success the traditional relationship of landlord and tenant will need to change so itis a real two-way relationship as opposed to the parties having different obligations and indeed objectives.

With the continued legal and policy steps to combat climate change, particularly in Europe, and the UK Government's proposals regarding zero-carbon homes and the likely extension to commercial buildings as well as the proposed Carbon Reduction Commitment, you can expect "green" leases to become the norm with a change in and challenge to traditional management practices and obligations being accepted by both parties so as to attain sustainable and energy-efficient buildings. The co-operation of the landlord and the tenant is needed to make sure that not only is sustainable technology used in the design of the building but it is then used in an efficient manner. To meet the UK's ambitious carbon reduction target of 60% by 2050 a lot more has to be done and with buildings representing one of the largest contributors to emissions if business does not start to respond and to change behaviour you can expect legislation to be introduced requiring you to do so. In our next Alert, the final part of this series will look at simple steps that can be taken by businesses as part of any corporate social responsibility programme to reduce the effect on the environment of the buildings they occupy. In particular we will focus on the Carbon Reduction Commitment in the UK, being part of the proposed Climate Change Bill, and its likely effect on businesses which have a high annual electricity usage.


1 Prepared by the Australian Government solicitor for the Commonwealth of Australia.

2 Green Value Study 2006, Realpac

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.