Are we heading towards market standard Green Leases?

The past decade has seen a huge acceleration of environmental legislation and corporate governance in real estate. No longer a “nice to have”, environmental credentials are now a prerequisite to funding, planning and procurement in real estate portfolios.

Lawyers are already having a very influential part in the environmental arena. We have seen how successful collaboration can work with The Chancery Lane Project where environmentally minded clauses are drafted in groups and go through a rigorous review from a panel of the UK’s top 25 law firms. Comprising members of The Chancery Lane Project, investors, owners and occupier representatives, The Better Buildings Partnership (BBP) has now published its updated green lease toolkit.

More than just a precedent library for lawyers, BBP cleverly advises that “a green lease does not automatically result in a more environmentally efficient or sustainable building”. Rather, it should be used in conjunction with the other BBP toolkits which promotes responsible fit-out and green building management.

No transaction is ever the same. The BBP admit that “a one size fits all” is unrealistic which is reflected in their classification of green lease clauses as “light” “medium” and “dark” – the lighter the shade, the lighter the approach to sustainability.  The BBP’s green lease toolkit does not have legal or regulatory status but it does helpfully reinforce the importance of collaboration to improve environmental performance; each stage of a lease should be seen as a partnership with parties working together and sharing risks to help reduce the environmental footprint of a commercial building.

Encouraging the industry to move beyond basis green lease provisions, The BBP have listed 10 areas which must be provided for within a green lease. These are:

1. Cooperation
   This sets out the shared aim of the parties to improve environmental performance and provides how the parties can work together to achieve this.
2. Building Management / Sustainability Group
   The parties are encouraged to communicate on matters such as data-sharing, environmental performance, travel plans and sustainability.
3. Sustainable Use
   The premises should be operated in a way which keeps energy and water consumption at a ‘reasonable level’ and the parties will use reasonable endeavours to ensure that such consumption is kept to a minimum.
4. Data Sharing & Metering
   The parties will regularly share data regarding the use of energy, water and waste in the premises (and other data where agreed) in the interests of transparency. The opportunity to install a meter to capture the usage will be available to either party as agreed.
5. Extending Landlord rights to do works
   If the EPC rating of the premises declines, then the landlord has extended rights to carry out works to improve the environmental performance of the premises, but only if it does not materially adversely impact the tenant’s occupation.
6. Tenant’s Alterations
   The tenant’s ability to carry out alterations which adversely affect the environmental performance / EPC rating of the premises will be restricted.
7. EPCs
   This sets out the circumstances in which the tenant can obtain an EPC, which gives the landlord greater control over the quality of the report.
8. Waste
   The parties agree objectives to minimise the amount of waste generated from operating the premises and maximise the amount that is reused or recycled.
9. Re-instatement (yield-up)
   The landlord should carefully consider whether alterations need reinstating at the end of the term with regards to environmental performance. If reinstatement is not required, the landlord must provide notice of such to the tenant. If reinstatement is required, then both parties must minimise waste on exit and maximise the amount reused or recycled.
10.  Renewable Energy
    This promotes the procurement of renewable electricity for the premises.

A helpful yardstick for the industry to take heed.  It does not, however, provide commentary as to how this will impact existing leases and which provisions should be included on any renewal. The long awaited Law Commission’s consultation paper on The Landlord and Tenant Act 1954 will hopefully remedy that and provide guidance on introducing green provisions in statutory lease renewals.

If you would like to discuss how these green clauses may impact your asset or real estate portfolio, please contact Joanne McIvor or any other member of the Commercial Property team.

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