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James Letchford discusses ‘green leases’ of commercial properties

  • May 18, 2021
  • By James Letchford, Senior Associate

What are green leases?

The term green lease is a bit of a misnomer. It is not a lease printed on green paper nor, more importantly, is it a lease.

What people really mean is that the lease has elements which relate to the management and improvement of the building to which the lease relates. More precisely, it is the use by landlords and tenants in their own leases of a number of “model form green lease clauses” as recommended by the Better Buildings Partnership which they can adapt to fit their own requirements.

Leases have historically been adversarial with most of the obligations and restrictions falling on the tenant with minimal obligations on the landlord. Adopting green lease clauses sets out obligations relating to environmental performance of a building that is binding on both landlord and tenant.

When?

Green lease clauses are most relevant when granting a new lease or dealing with a renewal.

In additional to green law clauses, the Better Buildings Partnership has also provided a model form “Memorandum of Understanding”. The purpose of this is to have a written agreement outside of the lease setting out how a building’s environmental performance will be managed and improved. This is not legally binding and might be more relevant if parties want to introduce the concept during the tenancy without needing to vary the lease itself.

Why?

Substantial carbon emission reductions need to be met from the whole sector rather than hoping that more efficient, newer buildings will somehow reduce overall emissions. Adopting green lease clauses, if exercised in practice, should lead to a reduction.

For those more cynical, it comes down to money and corporate social responsibility: it may save money for landlords and tenants and help with the brand image.

If that is not enough, then consider the increasing legislation and policies to encourage carbon and energy reduction including the CRC Energy Efficiency Scheme, minimum energy performance standards, EPCs and revised building regulations.

What does it include?

The collaboration between landlord and tenant should extend to a number of topics, depending on the nature of the building: sharing of energy information, energy, water, waste, works, transport, biodiversity, re-instatement, service provision, service charge reporting.

Provisions can be tailored to be absolute or more lightweight as required.

One issue for tenants may be the concern about sharing data relating to energy, water and waste usage although this can be covered by appropriate drafting to make clear that any shared data is confidential and only for the specific use relating to the environmental performance in the building.

Downsides?

Additional administrative burden and cost. Institutional landlords are increasingly requiring green clauses in their leases and larger tenants are more willing to accept the additional obligations but they have the resources to comply. No doubt over time more leases will incorporate these obligations so they become standard but this is likely to take many years.

For specific advice on green leases, or if you have questions about any other commercial property issues, please contact James Letchford on 020 7412 0050 or james.letchford@hunterslaw.com.    

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