Green leases – it’s not easy bein’ green – or is it?


25th October 2021

The Prime Minister recently told world leaders at the 76th Session of the UN General Assembly that "When Kermit the Frog sang 'It's Not Easy Bein' Green' I want you to know he was wrong". Boris was referring to forthcoming COP26 Conference to be held in Glasgow, Scotland and stated, "if we keep on the current track then temperatures will go up by 2.7 degrees or more by the end of the century".  World leaders will come forward at the Glasgow conference with their emissions reductions targets for 2030 as governments look to introduce legislation to offset carbon emissions. Rhiannon Peploe-Williams provides some insight into how the UK Government's drive to be more 'green' will impact upon the content of commercial property leases.

The Prime Minister's statement was not merely anecdotal. According to an article by the UK Green Building Council, "the built environment contributes around 40% of the UK's total carbon footprint". UK Government policies are already obligating developers, landlords and occupiers to focus on the environmental performance and sustainability of buildings. The trend is a move towards 'green leases.

What is a green lease?

As part of the move to energy efficiency, landlords are producing ‘green leases’ that incorporate commitments from both landlord and tenant to collaborate on issues such as energy consumption, waste reduction, emission of greenhouse gases and water efficiency. However, whilst it is possible for a landlord to require any new tenant to enter into a “green lease”, this will have a very limited effect in achieving the Government’s objective because the vast majority of existing commercial property leases will not contain any green provisions. Therefore, we are seeing landlords approach their tenants to vary existing leases across property portfolios to incorporate green clauses.

There are several ways in which a landlord and tenant may collaborate on green issues;

  1. green clauses within the actual lease;
  2. green obligations in tenant handbooks/regulations; or
  3. a requirement in a lease to comply with an environmental policy.

Given the increasing importance of green leases and green “clauses”, we believe we will also see these provisions included in heads of terms negotiated by agents at the outset of transactions.

These provisions will also not just appear in the lease itself – they will form part of a managing agents strategy for each building.

At the moment, the leases we see tend to have a very limited mention of anything “green”. For example, an alterations clause in a lease will prevent a tenant from carrying out works that will have an adverse impact on the environmental performance of a property (or its “EPC” rating). However, green leases are going a step further.

We are seeing:

  • obligations to collaborate on ‘environmental performance’ initiatives including energy consumption, water consumption, waste management, generation and/or emission of greenhouse gasses;
  • ‘sustainable use’ obligations to maximise environmental performance on top of the usual Permitted Use definition;
  • obligations to comply with environmental policies or to attend sustainability forums to encourage review of the environmental and sustainability policies for the estate and to agree future ‘green’ targets;
  • addition of metering equipment to a property to measure the environmental performance of a building which is charged to the tenant via the service charge;
  • inclusion of rates taxes levies environmental charges and outgoings relating to energy consumption to landlord’s expenses via the service charge; and
  • waste and refuse charges/limiting deliveries to the commercial unit per day to decrease fuel emissions.

We have first-hand experience as legal advisors to many commercial property landlord and tenants in reviewing and negotiating ‘green lease’ clauses and in advising on deeds of variation issued by landlords to vary existing leases to introduce sustainability provisions. We believe that over the next 6-12 months we will see more sophisticated ‘green clauses’ appearing in leases and agreements, as the leasing market matures. We will explore these provisions in our next Newsletter.

We have first-hand experience as legal advisors to any commercial property landlord and tenants in reviewing and negotiating ‘green lease’ clauses and in advising on deeds of variation issued by landlords to vary existing leases to introduce sustainability provisions. We believe that over the next 6-12 months we will see more sophisticated ‘green clauses’ appearing in leases and agreements, as the leasing market matures. We will explore these provisions in our next Newsletter.

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