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20 Jan 2022

Green leases & getting to net zero by 2050

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The UK government is committed to reducing emissions and achieving carbon net zero by 2050. The real estate industry can work towards this target by encouraging the tenants of existing buildings to work with landlords by the use of 'green' lease provisions.

Real estate currently contributes to approximately 40% of annual global CO2 emissions, primarily as a result of the materials used in construction and the energy consumed in the form of utilities.  This, coupled with the fact that 80% of buildings standing today will still be in use in 2050, means that efforts to tackle climate change must focus not only on the construction industry and new developments but must also provide longer term solutions for existing properties.

Whilst there is no current industry standard form of green lease, projects such as the Green Lease Toolkit published by the Better Buildings Partnership and the innovative Chancery Lane Project have seen the development of core provisions such as those set out below:

  • Utilities and waste – provision to encourage tenants to reduce energy consumption and and use electricity from renewable sources where practicable and reduce the amount of waste generated and encourage recycling.
  • Deliveries and collections – provision for tenants to agree to use electric vehicles for deliveries and collections, consolidate deliveries and reduce the number of journeys made by their vehicles.
  • Alterations – provision to prevent tenants from undertaking fit out or other more significant works that may reduce the energy efficiency of the building or premises and/or reduce the EPC rating.
  • Energy efficiency improvement works – provision for the landlord and tenant to work together to make improvements to the building or premises to improve energy efficiency for example by replacing outdated or energy intensive lighting and heating systems and installing insulation.
  • Data collection and sharing – provision to capture and share energy use data, often via the building management system and or an online database.
  • A mutual commitment to operate in a sustainable way – provision to work together with initiatives such as environmental forums for tenants to meet and discuss relevant issues and work collaboratively with the landlord to improve environmental performance.

An effective green lease can therefore reduce emissions, increase transparency, consolidate services and accelerate innovation. Green lease provisions have the potential to enhance an organisation’s reputation, improve the wellbeing of the building’s occupants, attract and retain employee talent through shared core values and provide assurance for tenants that their sustainability priorities will be met.

Cost benefit analysis

In the current market occupiers are increasingly focused on total property occupancy costs. Rent is market driven and often agreed up front and business rates are set. However service charges and utility costs are potentially more variable. An environmentally sustainable building combined with efficient management and collaboration may help support tenants in reducing these operational costs. Further, many larger landlords are now sourcing energy on behalf of their tenants. They are uniquely placed to leverage their size to procure green energy at lower and less volatile prices for tenants.

Collaboration

In order to deliver tangible environmental outcomes collaboration between the parties is key. One size does not fit all and knowledge sharing is essential if we are to significantly advance the sustainability agenda. Effective data sharing allows properties to be reliably benchmarked and provides evidence of any efficiency savings. Achievements should be communicated to enable both parties to deliver on their own sustainability commitments and policies.

In summary, improving the sustainability of a building by the use of green lease provisions can be relatively straightforward, cost-effective and of benefit to both landlord and tenant. Green lease provisions should remain balanced and fair according to the nature and length of the respective interests. Generally tenants with shorter leases will look to a landlord to take on a greater proportion of any capital expenditure involved with energy efficiency improvement works. However, commitment from both sides is required if real progress is to be made and, where there is that commitment, it will inevitably result in rewards for both parties.

This article was first published in CoStar on 20th January 2022.