Going green in commercial property leases
Green clauses in commercial property leases are becoming increasingly common. Driven by climate concerns, there is a push to reduce the environmental impact of buildings.
The Government’s Net Zero Strategy set an ambitious target to reduce emissions by 78% by 2035, compared to 1990 levels, and achieve Net Zero by 2050. The introduction of the Minimum Energy Efficiency Standards (MEES) legislation has also been significant. These standards are not guidelines but legally enforceable standards. Both Net Zero and MEES are driving the impetus for including green clauses in a commercial lease.
What are green clauses / provisions?
Green clauses in commercial property leases are concerned with issues of sustainability and the need to improve the building’s environmental performance. In essence, a green clause or provision puts an obligation on both the landlord and tenant to reduce the environmental impact of the property concerned. The green clause forms part of the legally binding contract. It can cover issues such as:
- Improving the building’s energy efficiency rating – improving insulation, draught prevention, installing energy efficient heating and lighting systems, investing in renewable sources of energy
- Reducing water consumption – developing a written plan, monitoring usage, identifying leaks, installing aerators
- Improving waste management – identifying ways to reduce waste, ensuring sustainable disposal such as recycling and going paperless
- Using sustainable materials for repairs and refurbishment
An alternative to a green clause could be a Memorandum of Understanding. This is a written agreement between the parties but is not legally binding.
Why should I include a green clause?
A ‘green lease’ can help landlords and tenants to work collaboratively to improve sustainability and environmental efficiency. It can also help them comply with their own business sustainability objectives and support their corporate social responsibility goals.
An energy efficient building means low energy waste, which could mean a reduction in operating costs for tenants. As such, an energy efficient building is likely to be a more attractive offer for tenants. It may also secure a higher rental for the landlord than a less energy efficient property. So, although there might be an initial cost for improvements, there is the potential for securing higher rentals going forwards.
For the government to reach its Net Zero target, it is likely that more legislation and policies will come into force in the coming years. It will not be enough to merely improve the efficiency of new build properties. Work will be needed to reduce the environmental impact of existing stock to meet targets. So, landlords and tenants can get ahead of the game by considering the use of green clauses now.
For information and advice on how to include green clauses in commercial leases, or any other commercial property matter contact one of Bird & Lovibond’s commercial property team: