On January 29 2024, the Better Buildings Partnership (BBP) launched its updated Green Lease Toolkit. The environmental performance of buildings is fast becoming a differentiator in determining value for Real Estate investors, and the BBP Toolkit is expected to be a new market benchmark for green leases and drives the conversation about wider sustainable goals.

In this webinar, Real Estate experts Tom Baines and Nick Bridgman, Gowling WLG alongside industry guests Laura Thrower, Responsible Property Investment Analyst at Royal London Asset Management and Kirsty Draper, Head of Sustainability for UK Agency, JLL (and member of the Green Lease Toolkit steering committee) discuss the updated BBP provisions (including the introduction of social value), the impact the Toolkit is expected to have on sustainable property ownership and future transactions and how owner/occupier collaboration is key to implementing green lease provisions and reaching mutual ESG goals.

Transcript

Tom Baines: Okay so I see more people are joining and arriving which is great so I think we will begin. Firstly, thank you everyone for joining us today for this webinar discussion on sustainable leasing in green lease provisions. It is great to see that so many of you have an interest in this topic and we have assembled a fantastic panel for this session who I will introduce shortly.

A few housekeeping notes before we begin, we have one hour for this discussion although we aim to finish slightly earlier than that. In terms of structure we are doing the session with a general discussion of green leases and the updated BBP green lease toolkit. We will then go on to talk about some of the challenges and opportunities that the new toolkit presents and finish by grappling with some of your questions and comments in the Q&A. Please do use the Q&A function for questions throughout we will try and answer as many as we can towards the end of the session. If we do not get to answer your question live we will get to it and come back to you separately after the event.

Finally, today's session will be recorded, uploaded to our website at Gowling and circulated via a follow-up email. There will be a very short feedback survey pop up at the end so please do let us have your thoughts on today's session. So let us begin.

My name is Tom Baines and I am a partner in the real estate group at Gowling WLG. I specialise in commercial property development and investment, advising property companies, developers, investors, and owner/occupiers on schemes across the UK. Our practice has a particular focus on industrial logistics as well as energy related development projects and datacentres. Often this includes advising clients on the green lease provisions whether part of negotiating terms for a particular transaction, advising more widely on precedent documents. The reason we are together now talking about green leases is that the Better Building Partnership updated its green lease toolkit last week. The toolkit was first published in 2008 and last updated over a decade ago. It has been one of the few benchmarks and resources for green leasing terms and has grown in influence and sustainability issues have risen up the agenda for owners and occupiers and commercial property.

Last week's update has been much anticipated due to the current interest and demand from landowners, occupiers, and investors to deliver on their ESG goals. It has already made quite a splash being described as a radical in the Estates Gazette headline last week.

To discuss the new toolkit I am joined today by Laura Thrower responsible property investment analysis at Royal London Asset Management, Kirsty Draper head of sustainability for UK Agency at JLL, my colleague Nick Bridgman a senior lawyer here at Gowling whose extensive experience negotiating leases on behalf of occupiers and advising them on their portfolios.

Laura, let us start with you, would you like to introduce yourself and say a bit about your role and your experience with green leases?

Laura Thrower: Yes, thanks so much Tom.

Hi to everyone who has joined today so as Tom mentioned my name is Laura Thrower and I work as a responsible property investment analysist at Royal London Asset Management. For those who do not know Royal London Asset Management or RLAM, RLAM is a multi-asset or asset management business with about 160 billion of assets under management. Of that 8 billion sits within our property portfolio which is comprised of about 230 buildings mainly across office, retail and industrial spaces and we have got about 1300 occupiers.

My main focuses in my role are implementing our net zero carbon pathway which was launched at the end of 2021 targeting net zero across our directly managed assets and developments by 2030 and across our indirectly managed assets by 2040 and in addition to that also implementing our responsible property investment strategy so green leases has been very much a bit part of my role and focus since joining two and half years ago. We have a very heavily single let portfolio, we do have a number of multi-let offices about 30 of those 230 so green leases are a really key tool for us in order to collaborate with our occupiers, ensure we can help drive towards our own net zero carbon ambitions as well as help our occupiers on that journey as well.

Tom: Great, thank you Laura. Nick tell us a bit about yourself and where you deal with green leases?

Nick Bridgman: Hi everybody so I am Nick Bridgman I am a principal associate here at Gowling WLG, I have been with the firm for about 13 years now. I do actually act for landlords as well as tenants but my practice focus is mainly on institutional tenants in the retail office and industrial sectors. So today I will be speaking in my capacity as a tenant advisor. Over the last few years I have been advising a number of key clients on ESG strategy and MEES and the impact of green leases in particular.

Tom: Great, and finally Kirsty. You have been part of the BBP steering committee developing the toolkit update so please tell us a bit about your role and talk us through how the update has come about?

Kirsty Draper: Sure, so I am Kirsty Draper, I head up sustainability for our UK agency business. I have actually been at JLL for over 20 years now, 13 of which are spent in Central London capital markets, so I have very much got a commercial background. I took on an ESG lead role at the end of 2015 which in 2015 did not take up very much of my time, it turns out not that many people wanted to talk about sustainability back then. But then suddenly the momentum around sustainability grew as did the demand on my time and so this turned into a fulltime role just over two years ago. So, I work with our agency business to look at how we embed sustainability into our business line, obviously as agents we are often the people kind of negotiating those headline terms of leases and so understanding green leases and the benefits of green leases and being able to articulate those is a really key part of what we do here at JLL. As you said Tom, yes I also sat on the steer committee for the BBP green lease toolkit update which was fantastic it was a really amazing experience.

It is interesting because I think around the collaboration piece, you know we all know that in order to decarbonise we need to collaborate, and it was really nice seeing that first-hand. We had a really diverse range of people as part of that steer group and you know, we did not always agree on everything completely, but I think the conversation and the debate that we had ended up creating a much more kind of, balanced and robust toolkit so it was really great to be part of that.

Tom: Great, thanks Kirsty. Now as I mentioned the toolkit was only updated last week and clearly it is going to take time for people to get their heads around it, think about what it might mean for them in their approach to leasing going forward. There is a lot to unpack but I want to start by asking all of you about your initial reaction, is there something a theme, a clause, an idea that had jumped out at you straightaway, something that excites or maybe concerns you, Laura let us start with you?

Laura: Sure I think that one of the great developments of the new toolkit is the different shades of green as to how the BBP describe it so under the different suggested lease clauses that you can add in they have got a light, a medium and a dark shade of green so if you wanted to more have a light touch approach to one of the clauses whether it is social impact or looking at renewal energy, you have got different variations of that and I think as a landlord where we have quite a diverse portfolio regarding sectors but also you know the multi-let offices versus the single-let I think it is important that we have that variation because there is definitely different levels of maturity of our occupiers on their ESG journey. We have got some who have really, you know hard corporate net zero carbon, science based target commitments particularly in the office sector we have got a lot of smaller multi-let industrial tenants.

As an example where they may be just starting their ESG journey so I think having that variety where we can you now engage with the occupier, see what makes sense for them is really important rather than having a one size fits all across all the different clauses so I think that will be really useful for us across our different sectors.

Tom: No, thanks Laura I think that sort of distinction between the light, medium and dark is really interesting and I am sure that it is something that we will come on to a little bit later in terms of what the approach to that might be. Kirsty what is your initial takeaway?

Kirsty: Gosh where do I start, I think as Laura said, for anyone who has not seen the toolkit yet essentially it is a collection of about 20 clauses which are really helpful but for me each of the clauses has got preamble so setting out why it is important, it then has a statement of intent, so actually what is the main driver behind that clause and then as Laura said it has really helpfully got those different shades of green depending on where you are with your journey.

For me from an agency perspective having that preamble and those statements of intent in really simple to understand language is super super helpful but I think the other thing that I really like about the toolkit is the flexibility that it has got in there. It has been designed to be a living toolkit so previously the old toolkit was a downloadable PDF whereas now this is hosted in a live environment and there is even a feedback button so actually I would really encourage everyone to look at it and if you have got feedback you know use that button, post it back there is going to be some formal governance around that but it is going to be you know updated as time as things do change and so I like that flexibility and I also like the fact that it has got, sorry, Nick I am stealing all the things here, but I also really, this is my last one I promise, I really like the fact that it has got guidance around heads of terms as well because I think that will be really helpful with all negotiations, so.

Tom: Great, I mean from my perspective one of the things that stands out we have got these various different clauses in the toolkit and I think there is about ten of them which is described as being green lease essentials which is a pretty strong term if you think about it. I mean some of the terms that are included that are fairly commonplace such as not impacting EPC ratings and data sharing and things like that. Others at the moment are probably a little less common such as operating building sustainably, waste and reinstatement at the end of term things like that and I think it will be interesting to see the extent to which landowners will align their precedents with the toolkit in these areas perhaps going a little bit further than they have gone before.

I think adoption of some of these provisions by modern commercial lease and other precedents might be helpful and influential in that too but a related thought about this essential element for me is whether we will see more weight being placed on these provisions and valuations. You know there has been a talk in the market for a while about whether buildings will attract a green premium or suffer a brown discount based on sustainability credentials clearly leases feed into that and so by calling these provisions essential points towards the latter i.e. if a lease does not have them is it now perhaps falling a little bit short of a standard so I think landlords will be keen to include these types of provisions and where as they might have been prepared perhaps in the past to drop sustainability provisions in leases to get tenants signed up and to get deals done I think that may not be something that we might be seeing so often going forward and just a final thought in these essentials thing is, you know the extent to which perhaps authorities might be looking at them when they are looking at green washing credentials and looking to enforce that, you know our company is walking the walk by actually having these provisions in their leases rather than just saying that they are. So I think there is quite a lot of interesting points coming out of that. Nick what about you, what stood out?

Nick: Well I think Kirsty and I think all three of you have probably covered the main points but I think from a tenant's perspective, I guess it is important to view how a tenant will look at any changes like this and I think as a population tenants are a little bit nervous. I am not saying necessarily that the toolkit is landlord friendly I am sure that you know Kirsty and I have already talked about the fact that there has been engagement with tenants and it is meant to be a balanced document. I just think that tenants will probably see it to be a little bit landlord friendly because all the usual provisions that they want to seek in terms of protections are not necessarily covered there. Now that is not to say that they have not been taken into account in the production of the toolkit, it is not to say that they cannot still make those arguments and get some of those protections still into the lease but I think as a starting point they will be a little bit nervous to adopt even necessarily even the light green approach.

I think in terms of main points from a tenant's perspective they are going to be looking at access provisions for landlords to undertake works and cost recovery mechanisms and from my perspective the big thing really is will the MCL adopt some or all of the green lease provisions in the toolkit and I think of the two documents really it is the MCL leases which will probably hold most weight for practitioners in reality so if the MCL ends up saying "...we will take out our environmental sustainability schedule just go and have a look at the toolkit..." that will obviously lend more weight I think to it when it comes to actually negotiating the clauses themselves.

Tom: Thank you Nick, so with that sort of.....oh sorry go on Kirsty.

Kirsty: I was just going to say it is also probably worth mentioning the toolkit is not designed to be a standard or a certification it really is meant to be really helpful guidance for people to use and I think you know the industry has been crying out for it. I think I am right in saying that even before this toolkit the previous toolkit is the most downloaded of all the toolkits used by BBP so it just demonstrates actually how much demand there is for it and I think you know it was also, it is particularly some of the shades of green are stretching and they are designed to be stretching and I think you know that is on purpose because the reality is if we want to decarbonise and create a more sustainable real estate we do need to change the way things have been done and so you know we need that and I think that level of ambition in there as well as an option.

Tom: Absolutely. So I mean bearing that in mind Nick what sort of conversations do you expect that you might be having with your occupied clients over the coming weeks and months as green lease provisions potentially evolve?

Nick: Yes I mean it is important to acknowledge that obviously a lot of leases already have these provisions in them or provisions which are similar to this so you know most of my institutional occupier clients see this on a regular basis obviously the bigger the landlord the more likely it is that they are going to include these leases within their precedents so we are not seeing anything new in that regard. We are already having the conversation and I think the conversation from a tenant's perspective needs to shift now to "...do we need to do anything immediately off the back of the toolkit?...". My response to that would probably be "...no..." on the basis that it is the landlord's document to start with and while it is a partnership between you know the parties as to how they go about their sort of joint ESG strategy, ultimately we sort of need to be guided by the landlord in terms of what their portfolio is saying and so I think immediately they will be saying "...do we need to do anything?..." and the answer to that will be "...no let us see what landlords come back to us with...". I think they are also going to be asking "...are landlords going to be more aggressive off the back of the toolkit...?" I would possibly say "...yes..." given that you know as Kirsty said "...you know... look there is a drive to be more sustainable and in order to achieve that you know we have got to be more realistic about how can both landlord and tenant play a part in that...". So necessarily tenants are going to have probably accept in the long run that they are going to have to give more in terms of what they do and what they allow the landlord to do.

I would also possibly say from a practical perspective because we are seeing a lot on EV charging points and district energy networks in new developments, is it going to affect what we do with those clauses. At the minute again I would say probably "...no..." because I do not think that the toolkit specifically references either of things but it is something again to be alive to and you know we can have a look at how those clauses are applied more broadly and I think lastly the big issue for negotiating green lease clauses is are we talking about an acquisition or a renewal and that conversation makes a massive difference to how you frame a negotiation.

You know on a renewal you have to balance, don't you the commercial position, the commercial reality of the parties and what they are tyring to achieve as against the main principles so you know from a tenant's perspective they will say "...well we are not going to allow you landlord just to chuck in a load more obligations that were not in the existing lease because we are not obliged to have to agree those..." and I know there was a couple of logistic cases a couple of years ago which touched on that briefly but there is not real case law which sits behind it, so I think the tenants standard position will still be under O'May, I am going to say "...no..." and if we have to have an argument about it then so be it but I am relatively confident that we will win that argument if push comes to shove.

Tom: Okay.

Nick: On an acquisition however anything goes so you know that is a very different conversation.

Tom: I think ....

Kirsty: Can I just....

Tom: Sorry Kirsty.

Kirsty: ....sorry can I just add to that though because it is interesting hearing your view on that Nick, in the market I think the most interesting shift that I have seen and I would say that I have seen this over the last 6 – 12 months is I think historically as you say green leases did tend to be something that were initially introduced by the landlord but actually I think the big shift that I have seen in the market is now we are having large occupiers requesting green leases. We are seeing occupiers develop their own green lease toolkits for across their occupied portfolio and we are already one of the services that we provide is to do kind of almost like a data scrape of leases for occupiers looking at what terms they have got in there and then looking at points, whether that be reviews, break dates, renewals and opportunities for how they can then introduce them and so I know that is not all occupiers but actually we are seeing that shift which I think is quite an inviting trend.

Nick: Yeah in fact we have got a client that sends out a letter so as a broad principle they do not like to agree anything in a lease but they will as a matter of course on any acquisition or renewal they will send out a letter which is non-binding but they will send it to the landlord saying "...this is what we wish to achieve from an ESG perspective in respect of this particular property..." and you know the landlord may look at that and go well "...if you sent me this why will you not agree it in the lease...". The answer to that from our client is "...well we just do not think the lease is the right place to put it but we want to show you that we are committed to being green which it sits in line with our own ESG strategy...". So it is interesting to hear from you Kirsty that some occupiers are going the other way and saying "...actually we want our own clauses in it..." it will be interesting to find out how those obligations actually sit in respect of the toolkit because obviously a lot of the obligations that tenants will be slightly wary of are things, as I said earlier, like the landlord coming in to do works and recovering the cost from the tenant so certainly the letter that this one particular client of our sends out does not go that far but it does agree to things like data sharing, you know allowing the landlord access but it is at absolute discretion and things like that, so it is paired down than the obligations or the obligations that are referred to in the toolkit.

Tom: It is really interesting to hear that you know parties are starting to come together in terms of agreeing these sorts of provisions. Laura do you have anything to add from a landlord's perspective there?

Laura: Yeah absolutely and I think it is really interesting what you have just said Nick about how you have a client that sends a letter to their landlord to say "...this is what we want to achieve from an ESG perspective..." because I think on the sort of the flip side one of the ways that we have been trying to tackle the potential concerns from a tenant in implementing our green lease clauses up until now is we also sort of send a one page letter to each of our prospective tenants where we are signing a new lease or renewal to explain what the different clauses in the green lease are saying because I think the first, one of the most important things is to put occupiers at ease is explaining why the landlord is trying to implement these clauses so we developed a one pager in 2021, so a few years ago now, against the elements we had in our green lease clause at the time so data sharing, not you know doing works to worsen the EPC but explaining the reason behind that because I think that just gives it a bit of colour and a bit of you know context for the occupier which as Kirsty mentioned in the beginning the new lease toolkit, the updated toolkit has got the statement of intent against each clause and actually from doing that and developing that one pager we really saw quite a bit of uptake in our green lease clauses from the tenants because I think they felt more comfortable with what the landlord was, you know trying to impose, and you know demonstrating a reason behind it so explaining we are on a net zero carbon journey, we would like your data so we can do more accurate reporting and work collaboratively to creating more energy efficient spaces and achieve our NZC you know targets and hopefully help the occupiers towards theirs.

I think another point which I think helps would hopefully help the occupier become more comfortable with these clauses is demonstrating the benefit that it brings them particularly potentially from a financial perspective and kind of using an example, which we were actually talking about it this morning, is we have been working on implementing AI artificial intelligence technology across a number of our multi-let offices to try and optimise the buildings performance, reduce energy costs, save energy carbon and also financially for the occupier and as of this morning within nearly a year we have managed to save about a quarter of a million in energy costs. Obviously this has involved the landlord going into the building, installing kits through and this technology service to understand how the building is running and save, you know implement these savings.

The cost of this through went the service charge so obviously was for the occupier to absorb, however, we have saved far more than has gone through the service charge and really demonstrated those savings so I think to be able to say that upfront to the occupiers, you know, as Nick also mentioned, there is a bit of the new toolkit that extends the landlord's rights to do works in the building and I think if we are able to be upfront and say "...I know it is, you know, intrusive and we are spending X on doing this and we want a contribution from the tenant, you are going to save this amount..." so it sort of really demonstrates that we are doing is actually creating a benefit for the occupier as well and I think the kind of final point I wanted to make was there is very much, you know landlord, tenant, that kind of relationship and we are trying more and more as I am sure lots of other landlords are in creating a partnership and really working collaboratively and I think it is really important to do that, you know, even the term tenant isn't used but instead looking at using the word occupiers. I know other landlords use a different term to make it less legal I guess, and I think we are finding that is working really really well.

We have, for example, as one of our developments we have pre-let Holborn Viaduct a large development to Hogan Lovells and it is has been a really collaborative partnership the whole journey and it continues to be like that and I think that is what really makes it, you know, it is important to have that collaboration to, you know, benefits to the occupiers and also the tenants and have that positive relationship so I think with any kind of new leases, new acquisitions, new developments sort of going forward we will definitely be looking to do that even further.

Tom: Loads of really interesting stuff to unpack in there, I mean the view the consensus has to be that early engagement is really important on these matters in terms of bringing everybody together, working collaboratively in a partnership rather than sort of looking to impose terms.

Kirsty mentioned earlier that the new toolkit has some sort of vestment heads of terms which might be quite useful in sort of engaging in that but what is clear to me is before you even start having these conversations as a landowner/landlord you really need to have in mind a strategy of what it is that you want to achieve for your buildings and how you want to go about implementing that and then evidencing the benefits of that to your tenant.

So when I talk to clients about green lease provisions I always say that they need to have an element of mutuality to them so it is not the landlord dictating a position to a tenant, they need to be measurable as well so you can say "...well look how do I know the people are complying with these provisions or not..." and I think, Laura, you touched on data and the key role that that plays and that element and then an element about it as well as enforceability and how that would potentially work if it came to it and the toolkit is, I think quite deliberately, quite silent on that for the time being.

So where to go from there, I mean I think there is an interesting point around cost benefits analysis, Laura, in data and that role that that plays in terms of evidencing to tenants and taking them with you on that journey and trying to say "...look this works for everybody here..." so how key is that in terms of what you are looking at and what you are working on presently?

Laura: Out of it I think collecting data for me is probably the absolute foundation of any work that we do it is so key for tracking as I have mentioned our own net zero goals, seeing how we are doing on that journey also being able to demonstrate to an occupier through tracking of the data this is, what we have managed to achieve, this is what we have managed to save so I think the data sharing aspect of that green lease toolkit is really key and it has been, you know, for some time and I think is actually one of the elements of our green lease that gets much less pushback than it used to. I think perhaps because occupiers realise that you know the importance of that data sharing aspect so I think that it is something that we definitely need to be continuing to focus on collecting lots of hard data and I think just being able to provide that evidence back to the tenant.

Tom: Absolutely, and then in terms of other things to touch on, then again we mentioned this sort of the different shades of green within the toolkit and when I was initially reading it I was thinking there could potentially be a temptation to see the darker sort of shades of green as sort of like a hard entrenched landlord position and the occupier would be looking very much at the lighter touch sort of provisions but actually looking through all of it I think it is not a question of a tug of war from one end to the other it is very much a sort of a what level of engagement and what level of priority do we want to have on sustainability issues in this particular building and forming consensus around that and I mean that might potentially be driven, you know, by the nature of the asset as well.

I think for example looking at logistics buildings some of these essential provisions talk about using renewable energy and the darker option in the toolkit talks about using renewable energy that is generated on site. That is something that we are advising lots of clients on at the moment on their industrial and logistics estate is PV, battery storage, smart networks things like that which clearly if you have got that sort of set up and planning behind it feeds itself very well into these sorts of provisions whereas perhaps other types of assets, multi-let offices or whatever it might be may not be quite so well placed to deal with those sorts of things so I mean what sort of role do we think that the type of asset could have and how these clauses are negotiated, Kirsty?

Kirsty: Yeah it is interesting, so although I have an office background I do cover office industrial and retail across the whole of the UK and I think what is really interesting is often a lot of the conversations, you know, there is a huge amount of overlap, but actually as you say within industrial there sometimes.... there is more lower hanging fruit because you know in theory you can actually...it is much easier to generate all of the energy needed on site as an example.

I think there is also more opportunity around like a really thought through nature strategy and biodiversity often with industrial so you have got that nuance but then at the same time there are some kind of fundamentals which are really transferrable across all so ....but yes as you say each asset type has slightly different opportunities and challenges.

Nick: I think the key really is....sorry Laura... I think the key really is to get engagement at heads of terms stage what we are seeing quite often especially in the retail sector is that you will just see a one line in the heads of terms saying you know "...the parties will discuss green lease clauses..." or you know something meaningless like that and actually what ends up then happening is that the lawyers are having a conversation about it which means that the parties are not really engaging properly in what sits behind those discussions and I think what the toolkit perhaps could do is set the scene for parties going "...okay well before we speak to the lawyers let us just agree, well what are we going to do about this....you know if we are worried about doing works during the term, who is going to pay for them, who is going to do them?" and it only needs to be at that level but I think there does need to be some discussion or some more discussion that we often see at heads of terms stage.

Kirsty: I would actually go one further Nick and I would say it needs to be introduced even before you even get to heads of terms stage like it is really ....and this is another point that I think is really important, you can have the best lease in the world but if it sits in a drawer and no one knows what to do with it it kind of becomes pointless. The reality is, yes it might be difficult negotiating a lease but the really hard work begins with that ongoing collaboration and I think having the right stakeholders around the table and one of those key stakeholders are your agents, the people marketing that property they should be communicating what you want to achieve from that lease, why you want to achieve it and what the benefit is to both parties so that actually by the time you get to heads of terms it is not even a discussion because those principles have been agreed so that actually by the time it gets to you guys it might be a little about actually how biting those clauses are, but you are not having to debate the whole principle.

Equally the people negotiating the lease are usually not the people that understand the technicalities behind it the ESG elements of it or responsible for implementing it so you do need to have all of those people around the table as well to kind really successfully create that decarbonisation strategy because the lease is one part of that toolkit but it is just one part and there are a lots of other supporting behaviours around it that are needed.

Laura: I think just to build on what both Kirsty and Nick have said is I think there is definitely a need for having flexibility on the different asset type with the lease clause which I think is why it is so helpful having those different shades and in addition to that the heads of terms aspect. So we at Royal London we do have a set of templates of our offices but not so much for industrial and retail so I think that the green lease toolkit opens up that opportunity to create heads of terms sector specific because there are definitely going to be great opportunities as mentioned in industrial for perhaps biodiversity, renewable energy generation versus in office but then even in retail we have got a mixture of retail parks, high street retail and again that opens up different levels of opportunities and ease for implementing some of those lease clauses. I think further to it which is probably getting into even more into the detail as I think that the size of the unit or the size of the asset may also change what is you know easier to get into the clause or perhaps agree.

As I mentioned at the start we have got a lot of very small industrial units where, ESG might not be at the top of their agenda or perhaps understand why the landlord is trying to implement a number of clauses so I think that just having that flexibility is going to be really important and further to just what Kirsty mentioned, on having the right stakeholders in the room we have been working hard particularly across our retail space through our engagement to understand who is the, you know, the focal person on ESG to speak to across all of our engagement opportunities so we have got a sort of list of who is best to speak to and I think deducing you know those kind of lists on who the key people are from an ESG side, from a leasing side, bringing them all together is really important because I think we are very you know key and open to having conversations early on, understanding what the occupiers priorities needs, what their own ambitions are as well as ours, is a really important starting point.

Tom: And I think it is fair to say isn't it that the lease clauses is just one piece of the jigsaw aren't they, you know a really well drafted lease clause is all well and good but without the supporting information and everything else sitting behind it it is only, you know, probably not going to get you all that far at all. I mean there is other sorts of supporting documents as well you can tie in you know tenant's handbooks, waste management plans, things like that that really flesh out the detail which will avoid you having a lease which is hundreds of pages long but is the opportunity for parties to engage on topics like that so yeah that certainly chimes with me as well.

One point I just wanted to cover on, which I found interesting about the toolkit, there is an element in there about social value, so looking sort of beyond sustainability environmental considerations into talking about minimal social safeguards. For example for those who have not had a chance to look at the toolkit there is things about landlords/tenants responding to social impact surveys, complying with anti-slavery, and trafficking laws and looking at their supply chain, things like that. Kirsty what is the rationale in terms of sort of looking at the toolkit of branching out into these areas and just going beyond the mere sort of green the E aspect of ESG?

Kirsty: Yeah and actually it was one of the debates we had really early on was whether we still called it a green lease or whether we changed it to a responsible lease or a sustainable lease. I think for the sake of simplicity we stayed with green lease but I think everyone in steer group felt quite strongly that increasingly as we are getting to grips with the E element of ESG the S is becoming more and more important and something that should be addressed and it is interesting I got asked recently what I thought one of the....given that it is a live....the toolkit is basically a live environment and so it is going to be kind of amended and adapted over time. What element I thought could be expanded on and actually I think kind of that S is actually an area we might see even more on it in the future. I think it feels like the direction of travel certainly in the conversations that I am having with clients.

Laura: Yeah to add to that Kirsty I completely agree, so we in our current green lease clause we...should it be called green as you say...we do have a section on social it is quite high level at the moment it is not as in-depth as the toolkit and I think it is something we definitely look to update but we receive quarterly feedback from our various lawyers that we use to say where the green lease clause has been implemented, which clauses have been accepted, which perhaps you know the occupier has tried to strike out, and the social one albeit it being quite new has actually been accepted in quite a lot of instances and I think because it is not particularly onerous and I think it is more about collaboration, creating a social value forum, having you know, conversations with the landlord. I think perhaps occupiers quite like that as it is less about, you know, maybe hard data and getting access to their data or things like that.

I think it also resonates with us as well as lots of landlords I know that social is definitely has become or becoming an increasing focus for ourselves. We are in the development of a social value framework, a social value strategy and we are looking at the sort of whole property lifecycle, all of our different documents including our acquisition toolkit and looking at property management and sort of leases fall within that remit as well and understanding how we can work with occupiers to better the social value of their space, have a positive impact on the community, so I think the green lease toolkit and the social aspect might be a way that we can sort of infiltrate that in to there as well as it is definitely becoming a bigger focus for us.

I think with social, which again I have....has definitely been mentioned a lot and that the toolkit has got a lot of flexibility, I think social flexibility is very very important because ....you really to consider not just the sector, the size, the location, what the tenant does, what the local community, what is the, you know, needs and the wants of the local community, in order to identify how best to have a social you know increase social value, have a positive social impact, but I think that the toolkit says quote on quote you know "...this is not a one size fits all approach..." for social so it is really important that the toolkits acknowledge that.

Tom: I mean I think that is the key isn't it there is not a one size fits all answer to this. I mean just Nick, conscious a lot of the occupiers that you act for probably have you know very extensive policies on matters like this and they will have websites and they will have documents that people can download for transparency and everything like that, what do you think their view would be on sort of starting to incorporate these sorts of provisions in leases, will they think it is something that they want in a relationship with the landlord in that document or is it something where they will say "...well look we deal with this already here is all of our information...this is our thing...we do not want it in our lease thank you..."?

Nick: I think it is going to be the second option as noble as it all is but as you say Tom, I think that they will point to the fact that they have...well yeah any big institutional occupier will have a social policy which is probably freely available. They will want to have that for their own credentials but I think they will look at the lease and say "...well if this does not quite fit in with what we do as ..." you know some of them are occupiers "...as a global brand we are not going to make an exception for one letting..." so again to Kirsty's point earlier obviously it is not hard and fast so it is about having a conversation between the parties.

What I have seen, to Laura's point, is some high level drafting on a couple of leases for big office lettings in London but they are sort of high level, they do not really have any teeth sitting behind them so the interesting thing to see will be is there a move generally to more social clauses which actually have some weight behind them or are we sort of just paying lip service as we probably currently are.

Tom: It will be really interesting to see how that evolves. One thing I wanted to move on to we spoke a little bit about value that might be attributed to green lease provisions and incorporating those going forwards and also the value of engagement and really being able to evidence to occupiers why we....you know as a landlord you are looking to include these types of provisions. I suppose there might be an element in the market of landowners who feel they should be putting these sorts of provisions in if only to sort of future proof their assets or potentially if they are looking to dispose further down the line an incoming investor might have these as a requirement. Is there perhaps you know a danger as a landowner going into these negotiations, you try and put these in even though your heart is not really in it to preserve something further down the line and then not being able to evidence to your occupier that you are doing so for the right reasons and therefore struggling to get these clauses in at all?

Laura: Yeah I think that ....I think there is always that concern. I do not think we would want to be trying to put stuff into the clause sort of....and actually we do obviously have to protect ourselves, we do want it to be something that is beneficial to both us but also sort of beneficial to the occupier.

I think from that value perspective it is a really interesting one because I think, which was touched on at the start about how the valuation space is moving towards that potential green premium brown discount, I think that in a way green leases will potentially both directly but also indirectly link to that. I think that what has been seen in the market is there is definitely a growing link between EPC level/EPC rating and value and potentially also BREEM certifications having a bit of an impact on that and naturally within the green lease clause what is...we have, you know, been trying to obviously put forward which the BBP toolkit is also keen for it around not worsening the EPC through you know fit out or types of works the occupier might do, so I think having a clause in there would probably protect ourselves going forward regarding if you know that is the strength of valuation impact from EPCs and other certifications does move forward and I think from a net zero stance as well I think that will definitely start forming part of the valuation and maybe arguably starting to already but I think as the market moves towards having more net zero carbon buildings in the industry there will be a stronger market signal therefore that will start impacting values. So I think we do so perhaps need to start thinking about that more if we do not get a certain clause in there to you know decarbonise the building and green leases for us particularly with that heavily weighted single let portfolio is a real key way of getting into the .....getting able to have those opportunities to improve the building's efficiency, work towards net zero carbon, I think we may have to start to thinking a bit more in that protective way.

As the you know the market starts seeing, you know, ESG having an impact on value for sure, but I think to build on that again it all comes back to explaining to the occupier why we are trying to do these things and you know at the moment it is not to do with valuation I would say really, you know, there are so many other aspects and reasons for doing mainly because of our own commitments but I think just really drawing it back to the...giving them a clear reason why we are doing this and you know bringing them on that journey as such as well is really important.

Nick: And I do not think that tenants would buy the sort of the valuation argument if that is the way that landlords wanted to sort of couch it because you know from the occupiers perspective "...well so what that is nothing to do with me...you are doing a deal with me now, I do not care whether that affects your valuation going forward, you need to make sure you know that the heads of terms are such that you are happy with that deal you know for the rest of the term..." but as Laura said, I think you know, if that conversation is couched in terms of "...okay but what are you tenant getting from this..." whether or not it be as simple as just "...you are getting utility savings..." that is much more likely to work I think than looking at value.

Tom: I am just conscious of time and getting some really good questions in so I just want to round our sort of initial discussion with a quick question for all of you please, is there a way to make green lease provisions work for both investors and occupiers? Who wants to start, Kirsty?

Kirsty: I will kick off I think they do. I think it is interesting I have got a slide which I use quite a lot, I should have brought it along today, which sets out the benefits for landlords and the benefits for occupiers from what you can get through really successful collaboration and so many of them are the same, you know you want an efficiently run building, you want lower running costs, you know you want tenant engagement, you want your occupiers to stay you know there is so much symmetry in actually what you are trying to achieve and I think again it is one of the things that I really like about the toolkit is that it does help that kind of that preamble sets out why it is important and it helps frame that conversation around what those benefits are and so I think we have already shifted from that mindset of it is all landlord imposed obligations onto the tenant. I do think we are kind of really moving towards that partnership model and I think you know for the landlords that do not do that are going to be a bit left behind.

Laura: Yeah I think I was thinking exactly the same as Kirsty with regards to....there is so many benefits for both parties in having these lease clauses and setting it out is going to be really important. I think there may be...it will...there is definitely a reason that does work for both parties.

I think perhaps in time it might be slower for certain, you know, groups of occupiers as mentioned perhaps the smaller ones who are, you know, not as advanced on their ES or net zero carbon journeys but I still think over time we will get to that point across the whole market and all sort of occupier type sizes etc. where it does work because you know ESG shot up their agenda as it is across a number of occupiers and we are seeing that as well.

We are getting more questions on how the building is performing, we have got one of the occupiers who is trying to set a science base targets, they need to collect data on the building so you know it is right at the forefront of them and we are seeing more and more of that so I think...yeah it is just demonstrating the benefits to both and the reasons behind it is really key for both parties.

Tom: Brilliant, Nick briefly your thoughts?

Nick: Yeah it all just boils down to cost really I think at the end of the day you know big institutional tenants have their own ESG policy and you know at the minute there is a disparity between what that looks like and what they are asking for in terms of protection of the lease so I think necessarily we will see tenants soften their position but the big one really is who pays for all of this and I think the market has not yet settled on that answer and that is the sort of million dollar question really as to where the market goes with that?

Tom: Great, thank you. Got so many great questions in here I am just going to pick out a few to touch on now. I think we mentioned the significance of data sharing and the importance of data generally in evidencing to occupiers that the provisions actually are mutually beneficial. One of the questions we have had in is about overcoming the sensitivities around sharing of data, any thoughts on how that is best overcome?

Nick: I will just jump in here from a tenant's perspective so up until this point if we sort of ignore the tech that sits or that could sit behind this data capture the issue that tenants look at when they see these types of data sharing clauses is that we do not want the administrative burden so you know a landlord may have a massive portfolio and want consistency across that portfolio but so do big institutional occupiers as well. So they do not want to have lots of different reporting obligations for lots of different landlords some which you know are hard and fast obligations, some which do not, you know, the clause in the lease do not actually sort of hold any weight or have teeth behind them so from that perspective if it is still a manual data sharing obligation that is a really big no no from an occupier perspective.

If, to Laura's point earlier, that we can really see the increase in sort of tech for data capture that will make it, I think a lot more palatable for tenants. Sensibly if they do not really have to do anything and the data is just captured and the data is what the data is then I do not see that they should have a problem with that.

Kirsty: It is one of the things that actually the toolkit does address because it really does recognise that administrative burden...

Tom: Yeah.

Kirsty: ....and so I mean obviously tech are having a kind of a really efficient system that does it all automatically is fantastic but one of the things that the toolkit also allows for is for landlords to...with the consent of the occupiers, contact the utility companies directly and get that information so that actually the occupiers do not have to do anything after that initial sign off so it does seek to address that.

Laura: I think to come out at it actually from what we have seen as a landlord is the administrative burden point is definitely one that I think we have seen particularly across retailers but actually what we have noticed mainly in retail is that they would rather share their data through a spreadsheet so that means rather than us connecting to their meters or through a technology I think there is that hesitation that we are going to use this data against our occupiers or name and shame which is obviously is absolutely not what we are looking to do. We are trying to just capture the data for reporting purposes but also understand how we are along that journey.

I think that on the data there is sometimes some pushback because from say a retailer's perspective their priority is not the emissions from their building it is their supply chain that is where the bulk their emissions are scope 36 so I think they are perhaps, you know, not as ....you know, do not see the importance as such of sharing that with us but as for us obviously our scope 3 is you know 90% of our emissions or something like that but I do think that you know hopefully as technology evolves we are able to demonstrate the kind of safety behind the cyber security all those aspects we can hopefully move towards that ease of sharing data and again it is all to do with that explaining why we want the data.

I think that is what gives occupiers hopefully comfort in what we are doing we are not looking to use it against occupiers we are looking at it to almost help them as well along their own journeys as two and to build on that so we are talking while on the same question but actually we have worked with one occupier to install metering where they can access the live data themselves on a platform that we both have access to and through that the occupiers use that to understand where their electricity consumption is spiking at different points, they have then contacted the technology company that we have used to install that equipment to then help them further reduce their emissions and their carbon footprint, it was a case study in one of our most recent reports so actually I think that being able to provide those options to occupiers having a central data sharing platform for both the landlord the occupier can view showing the benefits then that way as well has been quite powerful for us.

Nick: It is pretty also worth...sorry Tom...just mentioning enforcement as well just from a legal perspective, so you know the types of data sharing clauses we have seen so far are sort of good faith clauses in what tenants try to steer away from is not any sort of absolute obligation or sometimes even a reasonable endeavour obligation with the risk sitting behind that that the landlord could try and enforce it albeit unlikely.

Some tenants have gone so far as to say they want a specific carve out from forfeiture, again perhaps overkill but it goes to show that they are nervous about the obligations as a whole. So technically it could be really useful actually to get rid of that nervousness.

Tom: Yeah I think enforcement is really an interesting point and probably something we could fill in an hour on its own easily, I mean in terms of how do you evidence loss as a landlord if someone does not give you their environmental performance data for a quarter or something like that you know how do you wash that through, what sort of sanctions might you want to put into the lease in terms of dealing with things like that, I think that is a really interesting angle.

One of the questions we have had which I thought was interesting was "...does choosing light green clauses demonstrate a lesser green ambition?" Kirsty, what do you think?

Kirsty: Look everyone is on different places with their sustainability journey and every asset is also going to have its own nuance and so it is really about looking at what is appropriate for you and I just think I personally do not have an issue with lighter clauses because actually it is setting that principle and I think the more that this comes into the kind of realm of conversation and the more it is discussed I think the more ambitious it will become over time and so personally I do not have a problem with that.

I did see another one about ....another question about "...if you start now with light green how can it adapt over time..."...

Tom: Yes.

Kirsty: ...one of the things that the toolkit also does is it has got a general kind of collaboration clause but also looking at actually how that is governed, and I think as I said earlier and as Laura will know. you know, yes negotiating the lease can be tricky but the real work comes after with that ongoing collaboration and I think if you get that right from the start and you have a really really effective collaboration strategy you will evolve and you will be operating your buildings in the most sustainable way and getting those sustainable outcomes and so you know even if the lease starts off as light green by the end of that time and that through that collaboration process I think you can end up being really ambitious.

Tom: I think that is an important point isn't it a lease is a pretty long term document, you know, you are talking 10,15, 20 plus potentially years in terms of how long that document will govern the relationship and inevitably things will change and there is the scope for parties to evolve how they approach these sorts of matters.

One question I think we have had in which is quite a good one is looking forward is "...we have waited 11 years for an update to the BBP toolkit do you think we will have to wait until 2035 for the next update..." I suspect the answer to that will be "no".

Kirsty: Well no because now it is hosted in a live environment and so it will be evolving and there will be a government structure around that...there will be a governance group with set meetings and so ....and like I said there is a feedback form as well and so this is definitely something that the BBP are looking to kind of constantly evolve and maintain to reflect kind of the changing needs.

Tom: Fantastic and I think that is good on which to draw a line under the questions because we are almost at the end of our time. There is loads of questions that we have not got to yet and we will come back to all of those separately so thank you everybody for sending those in. I think it is fair to say the conversation around the toolkit update is just beginning and will no doubt continue for some time.

On that note a quick reminder please to complete our short feedback survey and it will pop up. One of the questions on that is whether you would be interested in continuing this conversation with us and how to so please do answer that, help us organise more events just like this, perhaps something in person because we would love to hear directly from what you have got to say as well.

To generate one last soundbite before we wrap up I will close with a quickfire question to the panel about how strongly they agree or disagree with the following statement:

"BBP toolkit provisions will be included in most leases granted within the next two years".

Laura?

Laura: I would say I definitely do agree with that because I think that you know as Kirsty has mentioned and I have mentioned as well you know I think all of us mentioned actually, is there is definitely more appetite from occupiers to uptake some aspects of the green lease clauses. I did not want to strongly agree because as I have said a few times we do have such you know a lot of smaller units that are not perhaps the multi-let offices who are the bigger corporates with those high sustainability ambitions who do want to, you know, join on those perhaps darker green clauses, perhaps there will be a more lighter green and then moving to darker green on those smaller aspects but I definitely think there will be over the next two years a much greater uptake and I think that flexibility of the toolkit will really play into that.

Tom: Kirsty?

Kirsty: I hope so I mean without a tenant engagement strategy you do not have a sustainability strategy, so you are going to have to address it at some point and this I think it is just a really helpful toolkit and guidance to kind of help you on that journey.

Tom: Nick?

Nick: I think it very much depends on the size of the parties so in that regard you know big institutional landlords and big institutional tenants are already having the conversation to some extent.

Smaller landlords and smaller tenants not so much so I think that the people who already know about these types of issues are aware of the toolkit and it will further their conversation or further the journey as Kirsty has said but for smaller landlords and smaller tenants the issue is going to be making them aware of it and getting that into their sort of subconscious at the heads of terms stage so that they can really have this conversation at the outset.

Tom: I think I would side with everything that everybody has mentioned here I would say strongly agree but with some caveats, typical lawyer answer. Laura, Kirsty, Nick thank you so much for being part of the panel and for sharing your views and knowledge it has been an absolute pleasure to have this conversation with you and thank you again to everyone who has joined us today there are lots of you which shows just how important this topic is. Thank you very much for your time and I hope you all have a great afternoon.

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