It should be noted that a green lease is not a distinct form of contract, and there is presently no industry-wide standard “green lease.” Rather than that, it is preferable to think of the concept as a collection of terms that may be incorporated into the many forms of leases that are already widely used.
The aim is to enable building owners and occupiers to collaborate in order to mitigate a building’s environmental effect and increase its sustainability. Typically, these clauses will address the following:
- carbon emissions reductions
- conformity with standards governing energy efficiency
- strategies for waste reduction
- environmentally friendly modes of transport.
Additionally, the lease will demand that these concerns be reported consistently on a regular basis.
In this article, Green Lease – what is a green lease agreement, we take a look at the process involved.
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Why should you consider using a Green Lease?
There are numerous reasons for landlords and tenants to enter into a green lease, including the following:
- To improve energy and resource efficiency in order to cut costs
- To adhere to CSR (corporate social responsibility) policies
- To adhere to regulatory obligations for environmental reporting
Government regulation addressing sustainability issues continues to force firms to rethink how they operate from facilities they own or occupy.
Due to the Minimum Energy Efficiency Standards (MEES) restriction on the renting of houses with low EPC ratings, there is a greater emphasis on energy performance. Since April 2018, owners of F and G rated homes have been unable to lease them until active actions were taken to enhance the EPC rating to at least an E.
According to government data, up to a fifth of the UK’s commercial properties have become unrentable as a result. One efficient way to avoid this is by the introduction of green clauses that encourage collaboration between owners and occupiers in order to enable improvements and clearly define each party’s tasks and obligations.
Where is a green lease appropriate?
Typically, green leases are utilised for new or existing commercial or public facilities. They are now most widespread in offices, but are gaining traction in the retail sector. Green clauses, on the other hand, can be altered to fulfil any and all criteria, regardless of the type of property.
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While widespread adoption has not yet occurred, the United Nations’ (UN) Principle for Responsible Investment (PRI) Investible Policy Response Project forecasts that governments will greatly increase their policy responses to climate change by 2025. It notes that mandatory green leases would be an extremely effective strategy for achieving environmental objectives
Ultimately, green leases could lay the groundwork for a sea change in how we approach climate change. At the moment, as an industry, we continue to rely on clauses that may be familiar to landlords and tenants dating back several centuries, when full repairing and insuring clauses were introduced, so it could be considered a good time to readdress the status quo.
Will Green Leases become a fixture of all Leases moving forward?
Regardless of the precise green terms included in a lease, the requirements will require collaboration between landlords and tenants to be successful.
While both landlords and tenants can benefit from increasing a building’s environmental efficiency, others worry that green lease provisions will prove unattractive, if not unviable, to potential occupants. For instance, a tenant on a short-term lease may be hesitant to make costly upgrades to a facility if the payback would occur after the lease expires.
However, as a result of their Environmental, Social and Governance (ESG) reporting requirements, large occupiers in particular will likely be required to install at least a basic form of Green Lease in any new lettings, both for reputational reasons and to demonstrate their commitment to environmental improvement. Additionally, there is some evidence that green buildings command a premium in terms of capital value and rental income.
While there is no one-size-fits-all green lease that will work for every organisation, they are something that the real estate sector will have to adapt to in the coming years.
How we can help
We have a proven track-record of helping clients draft a Green lease. We are a multidisciplinary firm and have all the expertise inhouse to satisfy the most exacting requirements of our clients. We will guide you through all the necessary legal due diligence in a comprehensive and timely manner. We firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.
How to Contact Our Commercial Property Solicitors
It is important for you to be well informed about the issues and possible implications of signing a Green Lease. However, expert legal support is crucial in terms of ensuring a positive outcome to your agreement.
To speak to a member of our New Enquiries Team today, simply call us on 0345 901 0445, or click here to make a free enquiry. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.
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