A new era of green lease clauses? - Boodle Hatfield

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Article
26 Feb 2024

A new era of green lease clauses?

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Kate Symons View profile
7 min read

The concept of a "green lease" has been with us for some time now.  At its most basic, a green lease follows the form of a standard commercial lease but includes clauses to encourage engagement and co-operation between landlord and tenant to improve the environmental performance of the building. The Better Building Partnership (BBP) was among the first to put together a set of green lease clauses some 15 years ago in its Green Lease Toolkit.  Many of the leases in place today incorporate some or all of the original BBP clauses.  The BBP has now launched a revised version of its Green Lease Toolkit comprising guidance notes, case studies, green lease clauses (together with a statement of intent and drafting notes for each clause), advice on owner and occupier engagement and a green essentials checklist against which to measure the green credentials of a lease.

Green Lease Toolkit 

The Toolkit includes key lease provisions aimed at promoting the environmental performance of a building and provides users with the option to adopt light green, medium green or dark green clauses, taking into account the different levels of engagement and expenditure that may be appropriate for a particular transaction.  Whilst some of the key provisions from the original Toolkit still feature, including the underlying emphasis on co-operation rather than compulsion, the revised Toolkit now covers many of the original provisions in greater depth and includes significant new provisions notably including consideration of the social impact that a building may have on the lives of those interacting with it. 

The use of the Toolkit is entirely optional and it is not a government endorsed or statutory document.  Instead, it serves as a useful tool to assist both landlords and tenants in reaching agreement as to how best to maintain and improve the environmental performance of a building within a standard commercial relationship.  The Toolkit sits well with other initiatives such as The Chancery Lane Project and the Model Commercial Lease in providing well-reasoned and free to use resources with users free to negotiate, incorporate and adapt the clauses into their own standard documentation as they see fit.  

Key Provisions 

  • Co-operation: The success of a green lease replies as much on co-operation between the parties as the existence of strict legal obligations.  The option in the Toolkit to include the light, mid or dark green clauses is key to this spirit of co-operation rather than compulsion.  Typically the light green clauses encourage shared compliance with a minimum regime, whereas the dark green clause allow for the inclusion of more onerous obligations, where practicable.
  • Building Management Group: Communication between the parties occupying and managing the building is key, with the creation of a Building Management Group suggested as a useful forum to share data, targets and strategies to improve the environmental performance of the building.
  • Social impact: The growing demand for social provisions in the form of a "responsible lease" is acknowledged.  Appropriate social impact measures will depend on the nature of the building, but may include engagement with local residents, charities and schools, job opportunities (at the real Living Wage) voluntary work, engagement with local businesses and sustainable travel options, as well as the provision of diversity, inclusion and wellbeing support and resources to employees and users of the building.
  • Sustainable use: The Toolkit encourages the promotion of the sustainable use and management of the building through behavioural change, without the requirement for additional expenditure, for example encouraging occupier engagement to promote the efficient use of energy and water and the amount of waste that is generated.  
  • Metering and data sharing: The ability to collect and share data relating to energy and water use and waste production in a building is a key provision in the Toolkit, viewed as essential to the delivery of an energy and resource efficient building with landlord encouraged to fund the installation of appropriate smart meters.
  • Landlord's works: The ability for the landlord to undertake and recover the cost of works to improve the environmental performance of the building can often prove a sticking point.  The Toolkit clauses allow the landlord the option, but not the obligation, to undertake such works and at its own cost.  The degree to which the tenant is required to consent to such works varies from the light green clause (tenant's consent required) the mid green clause (tenant's consent acting reasonably having regard to the proposed works) or the dark green clause (no consent required).  By way of balance, the Toolkit also includes provision to ensure that the landlord does not carry out works that may have a negative impact on the environmental performance of the building.
  • Tenant's alterations: The Toolkit includes the now standard provision restricting a tenant from undertaking alterations that will have an adverse impact on the environmental performance of a building or the Energy Performance Certificate (EPC) relating the building, and goes a step further by suggesting an additional clause that exempts alterations by the tenant that will improve the environmental performance of the building from the requirement to obtain landlord's consent.
  • Energy Performance Certificates: The requirement to obtain an EPC is now a familiar feature of commercial property transactions.  The Toolkit suggests that where the tenant requires a new EPC, the landlord has the ability to specify the EPC provider or obtain the EPC itself and recover the cost from the tenant to ensures that any EPC obtained by the tenant is of an appropriate and reliable quality.  
  • Recycling of waste: Both landlord and tenant are encouraged to minimise the amount of waste sent to landfill and to increase the amount that can instead be salvaged (recovered, reused, repurposed, reprocessed or recycled) by the use of a Waste Policy including specific targets where appropriate.
  • Reinstatement: The requirement on a tenant to reinstate any alterations at the end of the lease term has long proved unpopular with tenants due to the financial implications of such a clause, aside from the environmental impact.  The Toolkit looks to balance the potential need for reinstatement (for example where necessary to make a property suitable to relet) against the potential adverse environmental impact, having regard to the impact that reinstatement may have on the environmental performance of the building and imposing targets for the salvage of materials and minimisation of waste.
  • Circular economy for landlord and tenant works: Both landlords and tenants are encouraged to take into account the potential for the reuse and regeneration of resources when carrying out maintenance, repair, alterations or reinstatement to the premises and or building. Whilst it is not currently common to see a lease make express reference to the circular economy, many commercial landlords will already have similar provisions in place in the form of alterations and / or fit out guides promoting best practice and these can, of course, be incorporated.
  • Environmental standards:  Where a building has an environmental rating, such as an EPC, the tenant should not use the premises in such a way as to adversely affect this rating.
  • Renewable energy: Where a tenant is able to procure its own energy supply, the tenant should be encouraged or required to purchase "green" tariff electricity where the same is available at commercially reasonable rates.  Where the energy is supplied by the landlord similar standards should apply.
  • Service charge: The landlord should be able to recover expenditure via the service charge, notwithstanding that a product or service could have been procured at a lesser cost (where the increase is as a result of the service or product promoting the environmental performance of the building) subject to a suggested cap of a 10% increase.

Use of the Green Lease Clauses

The relatively innovative nature of the light, mid and dark green clauses means that users of the green lease clauses are actively encouraged to adapt and prepare their own lease clauses based on those set out in the Toolkit.  The clauses have been prepared to supplement the Model Commercial Lease and, as such, can be adapted for use in most modern commercial leases relatively easily. Landlords and tenants alike should take the time to review the provision of the Toolkit and consider which, if any, of the clauses they wish to include to supplement existing provisions in their own standard documentation and to what extent it may be appropriate to include such clauses on renewal of existing leases.

Where once green lease clauses were included at the behest of the landlord, and often deemed to place an onerous and unwelcome burden on tenants, we are now seeing the spirit of co-operation promoted in the Toolkit prevail, with many tenants actively seeking, and prepared to pay for premises that are able to illustrate a commitment towards sustainability and social engagement and wellbeing.

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