The commercial property industry has had to cope with various changes in recent times emanating from an increased focus and awareness of carbon emissions.
Planning policy imposes green travel plans on the larger development schemes; building control imposes increasingly more stringent requirements for energy efficiency; energy performance certificates have also been introduced and there will soon be compulsory inspection of air conditioning systems in commercial premises.
These obligations are already finding their way into leases, even if only somewhat obliquely through a general tenant’s obligation in a lease to comply with current law in relation to its letting.
Commercial property leasing is likely to see a further possible stage in this evolution in the form of the “green lease”.
The term “green lease” is by no means a term of art. There is no industry recognised standard for such a lease and certainly there are few if any currently in existence.
It is accepted in the industry, however, that a green lease will be one which effectively contains novel and new provisions allocating additional responsibilities in relation to commercial premises for reducing carbon emissions. This may take the form of increased powers for the landlord in the administration of the service charge on an estate. For example, the landlord may have regard to carbon efficiencies when replacing communal plant and machinery. That might justify the introduction of more expensive state of the art energy efficient alternatives for building heating and cooling systems. The provision of onsite recycling facilities is another possibility.
New lease obligations might arise requiring the parties to act or not act in such a way having regard to carbon emissions. One example might be an obligation on the tenant to consider and implement measures to reduce its energy consumption year on year and to meet with the landlord from time to time to discuss possible opportunities for reducing energy consumption and emissions further. Landlords might be required to employ only energy efficient contractors in delivering the service charge.
Green leases are likely to have various perceived drawbacks. They may involve upfront cost which will not always benefit a tenant financially, particularly where the lease term is relatively short and the tenant is not there to reap the long-term benefit. Green lease provisions will also initially be largely aspirational in their objective and effect raising questions as to their worth and enforceability. Consequently, and without the added impetus of supportive legislation, they are bound to evolve slowly and to be of limited effect.
Government is unlikely to introduce legislation for mandatory green provisions in leases at the present time, not least as there is currently no meaningful and sufficiently mature concept of green leases. The commercial property industry has also already been hit hard in the pocket by legislation from the introduction of Stamp Duty Land Tax to the changes to empty business rates relief. Further legislation at this stage might also be perceived as a politically expedient and a further cost to the industry. With this being the case it will ultimately be for the larger funds and institutions that lead the way in evolving and promoting the concept of the green lease.
On a more positive note, we cannot discount the various immediate benefits which might arise from green leases. By definition they should inevitably lead to reduced energy consumption and cost. Carbon reduction is synonymous with corporate responsibility and this is an increasingly important factor for the public sector when tendering for services in the private sector. These factors will ultimately provide sufficient incentive for the industry to embrace this brave new world.
This article was first published in NewsBrief, Spring 2009.
For more information or advice on commercial property leases, please contact Mark Miller.
