Sustainability And Commercial Property: Green Leases

Climate change is considered by many the biggest threat we are facing today.
UK Real Estate and Construction
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Climate change is considered by many the biggest threat we are facing today. With the UK said to have one of the oldest housing/building stocks, the focus on a building's environmental performance and sustainability has never been more critical.

Much of the current best practice guidance on green leases drafting is being developed by Better Buildings Partnership (the BBP) which is a not-for-profit business collaboration of leading property owners. Practical tools provided by the BBP aim to help property owners and occupiers to become more sustainable and work together to achieve best, but also fair and realistic outcomes throughout the property transaction cycle.

What is a green lease?

In essence, it is a lease agreement which in addition to the standard lease clauses includes provisions which aim to provide a framework for the tenant's and landlord's co-operation to improve the environmental performance of the leased premises.

Green lease drafting

It is advisable to consider the green clauses as early as possible in the transaction and, if possible, include reference to the green provisions in the Heads of Terms. Although, it would often not be practicable to include specific clauses in the Heads of Terms, agreement in principle on the sustainability requirements is good practice. Understanding the parties' stance on the detailed responsibilities and obligations involved in environmentally sustainable occupation of the property can make the negotiations run much more efficiently and speed up the transaction.

Most commonly, the main aspects the green clauses cover are as follows:

  • Landlord and tenant cooperation provisions in respect of environmentally sustainable occupation of the property;
  • energy efficiency measures, including obtaining and maintaining an Energy Performance Certificate (EPC);
  • working together to reduce waste and increase recycling;
  • sustainable use of resources such as water and energy and commitment to renewable energy where possible;
  • works aimed at improving the property's sustainability performance and using sustainable materials for any repairs and alterations;
  • data sharing in respect of utilities consumption, waste and environmental performance;
  • measures aimed at complying with statutory environmental standards such as MEES and Building Research Establishment Environmental Assessment Method (BREEAM)

As with many new practices, there is no market standard for many green provisions yet. The green lease provisions can range from very light touch approach where parties share the same principles and vision, but for a variety of reasons cannot commit to legally binding environmental targets. On the other end of the spectrum, there are leases which bind parties to very detailed sustainability obligations with a substantial burden for non-compliance leading to strict penalties including lease forfeiture.

Why use green leases?

Although, most of us would be supportive of any initiative that is environmentally friendly, in the context of property management such commitment may often lead to the increase in financial burden which is a significant factor to be considered. Hence, tenants and landlords may have to look at the wider picture when contemplating entering into a green lease.

There are many benefits for landlords and tenants alike. Having green clauses in their lease may serve as tangible evidence for the tenant being able to show commitment to sustainability which in turn can improve the tenant's image and standing with the public. The environmentally conscious customers are often keen to see companies taking genuine actions. Tenants can also benefit from occupation of a building which is performing better in respect of the energy efficiency, utilities and waste production which can save money in the long run.

The advantages for landlords include compliance with environmental legislation and proactive engagement with the tenant and investor demand for sustainable buildings as well as enhancing their reputation with the public.

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.

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