Green Leases: What are they and what do they do?
Posted on 3rd March 2023 at 11:35
Environmental considerations are something we are all increasingly aware of and the real estate industry is seen as a key contributor to CO2 emissions. The industry is responsible for consumption of around 40% of the world's energy, renewable or otherwise, and 30% of global annual greenhouse gas (GHG) emissions are due to construction. Green Leases are seen as one way of combatting the effect property development has on climate change.
A 'green lease' is a lease that incorporates clauses whereby the owner and the occupier undertake specific responsibilities/obligations regarding the sustainable operation/occupation of a property, for example: energy efficiency measures, waste reduction/ management and water efficiency. They are not leases printed on green or environmentally friendly paper!
There has been a wide trend towards greater energy efficiency in buildings because of concerns about climate change and the contribution of buildings generally to greenhouse gas emissions. There is plenty of legislation which requires energy efficiency requirements in connection with new and existing buildings. The overwhelming majority of building stock comprises existing buildings rather than brand new buildings. Older buildings do not tend to be as energy efficient as new buildings. It is these older buildings where the greatest energy savings are needed. For most of the time with old buildings there is scope to save energy at minimal (if any) cost. A good example would be that a regulation imposed on tenants in a building might require that lights and computers are turned off when not being used.
More profound energy efficiency improvements are harder to achieve and will always be costly. Fitting potentially expensive technologies retrospectively will always be a barrier to the development of green leases.
Energy Performance Certificates which have to be obtained before the sale or rental of any property in the UK now are part of the trend towards energy efficiency. The introduction of the Minimum Energy Efficiency Standards (MEES) makes it unlawful to let a building if its EPC rating is below E.
Cost is always going to be the major obstacle to the take-up of green leases. One of the problems is that leases normally require tenants and occupiers to return or reinstate the premises to how they were at the start of the tenancy. This is a particular problem where the economic climate is difficult and where staff are limited and priorities may not stretch to include sustainability issues. One possible approach in tackling the cost issue is to introduce green lease obligations that will involve little or no cost and to concentrate on education and changing tenant behaviour building a cooperative relationship between landlords and tenants is seen as the way forward.
Green Leases have been seeing an increase in popularity with landlords and tenants and more leases in general factor in reducing carbon emissions from building operations, sourcing energy from renewables and decreasing waste and water usage.
There is no such thing as a green lease as such, it is more a series of clauses or provisions that can be added to a contract to ensure actions are taken to reduce the environmental impact. There will usually be a commitment given that the building will be operated sustainably and will cover waste, energy consumption etc. There may be a provision for a developer to report back on a regular basis on progress.
Commercial building leads the way with green leases, but retail is a growing sector also. The degree to which the lease can be called green can vary considerably and this is known as being different shades of green. From the most basic light green involving reporting back on energy consumption to a darker green which might include consent to alterations and termination issues.
At present the drive to green leases is coming from the industry and buyers rather than from legislation but they certainly seem to be becoming more popular.
At Avery Walters our team of Specialist Commercial Property solicitors can provide holistic advice about Commercial Property Law.
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Tagged as: Commercial Property
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