Green Leases
The concept of a "green lease" is nothing new, and versions of it have been developing within the market over the last 15 years. A green lease is, at its heart, a "standard" institutional lease. However, it also includes provisions aimed at addressing sustainability concerns through, for example, the control of energy use and the reduction of emissions and waste. Our 2023 briefing on the key principles of a green lease can be read here.
The commercial property market has inevitably evolved in terms of sustainability and environmental expectations during this period, and stakeholders increasingly pursue and support green lease drafting as a way to specifically demonstrate their commitment to ESG principles. A green lease does not, by itself, ensure a more environmentally efficient or sustainable building, but reflects an active commitment from both parties to work together to negate the potentially adverse environmental impact of their premises, and to benefit from ancillary rewards such as potential energy cost savings, and enhanced market reputation and employee satisfaction.
How can the Green Lease Toolkit help?
The Toolkit was originally launched in 2008, and last updated in 2013. Notwithstanding, it has been one of the BBP's most prolifically-used publications, as owners, investors, tenants and agents recognise the increasing urgency of, and market desire to pursue, increased sustainability measures.
The 2024 update is significant. It provides stakeholders and advisers with a more robust legal framework to guide conversation, agreement and drafting. It contains suggested legal clauses (and detailed explanatory notes) at levels ranging from "light" to "dark" green depending upon the level of commitment which the parties agree in a number of environmental action areas.
Core, but not-exhaustive, areas for green drafting are set out in the Toolkit's Green Lease Essentials, and focus on:
- Co-operation, to establish a shared aim to improve the premises' environmental performance.
- Building management/sustainability group, to encourage parties to communicate on data-sharing adequacy concerning environmental performance and to continue and evolve sustainability discussions.
- Sustainable use, to encourage behavioural change in the consumption of energy and resources to avoid waste.
- Data sharing and metering, to regularly and transparently share data regarding at least the use of energy, water and waste.
- Extension of landlord's rights to carry out energy performance related works.
- Tenant's alterations, to restrict alterations adversely affecting environmental performance, EPCs and other environmental ratings.
- EPCs, to give the landlords some control over the timing and commission of EPC inspections.
- Waste, to minimise waste and maximise recycling by both landlord and tenant.
- Reinstatement, to be guided by energy performance and waste principles.
- Renewable energy, to encourage both parties to procure renewable electricity sources.
Alongside the Toolkit's drafting options are user-friendly statements of intent and guidance, to aid understanding between the parties and to drive discussions as to how to make a meaningful, workable environmental plan which stretches, and delivers on, industry ambitions to reduce emissions.
The Toolkit provides an invaluable resource. Using the Toolkit, lease parties can better reflect their environmental goals by crafting new agreements, and amending existing agreements. For new leases, early understanding of, and agreement on, the sustainability parameters is essential, and heads of terms should now address these areas. Behavioural change can only be driven by consistent and considered collaboration between leasing parties, and the Toolkit provides key focal points to assist stakeholder discussion and agreement.
Please contact our real estate team for further advice on how you can implement green provisions within your leasing arrangements.
