Green Leases have been a big topic in the sustainability arena for some time now, and The Better Buildings Partnership (BBP)'s Green Lease Toolkit has been freely available for use since 2013. The recent changes to the UK’s Minimum Energy Efficiency Standards (MEES) regime, compliance which largely places responsibility on landlords, has brought into sharp focus the need to adopt ‘Green Leases’.
What is a ‘Green Lease’?
There is no market standard ‘Green Lease’, and the term encompasses a combination of ambition and expectation to become more environmentally sustainable. As noted above, BPP have created a freely available toolkit, and many leases now include sustainability schedules to facilitate discussions between landlords and tenants.
What might be included in a ‘Green Lease’?
The contents of a Green Lease will differ depending on the type of property, layout, and its use – however, there are some common inclusions:
Alterations: Tenants are (usually) prevented from installing work or plant that may negatively impact environmental performance and/or the existing EPC rating. In the event that a new EPC is required, the tenant is often required to ensure the landlord is involved in this renewal. In some cases, the landlord specifies the assessor that should be used and retains the right to enter the property and carry out energy improvement works.
Service Charge: The landlord may seek to recover the costs of any energy improvement works via a service charge. Whilst there is an argument that increased energy efficiency will result in reduced outgoings for the tenant, the capital cost will likely be a point of negotiation for the parties.
Yielding Up: Often, the tenant is required to remove any alterations at the end of the term of the lease. Some landlords are electing to retain the ability to waive this reinstatement obligation where the tenant’s works have improved the efficiency of the property, or where their removal would have an adverse impact.
Co-operation: The most common inclusion in a ‘Green Lease’ is a schedule documenting the co-operation between the landlord and the tenant to improve environmental performance. There may be goals and requirements stated in the lease, or it may only refer to a joint wish to improve the energy efficiency by way of sharing data such as meter readings or performance figures. There is often also an obligation to discuss the environmental performance of the property where there is a large estate within a forum.
When can ‘Green’ clauses be introduced?
Introducing Green Lease provisions can be introduced both at lease inception, and during the term. Landlords and tenants can agree to include green provisions in existing leases by entering a Memorandum of Understanding. The landlord may also create a ‘handbook’ setting out their sustainable practices.
Why should we adopt a ‘Green Lease’?
For tenants, adopting a ‘Green Lease’ could mean operational savings through improved energy efficiency, which in turn may mean attracting and retaining talent and improved employee wellbeing as we move towards a socially focused society.
Landlords are now liable for compliance with the MEES regulations (click here to read a previous article on MEES) Properties with enhanced green credentials may be able to command higher rents and overall present greater value and returns for owners, making them an all-round more attractive proposition.
The UK government has set a national legislative target of a 78% reduction in greenhouse gases by 2035 and a net zero target by 2050, and for this goal to be achieved the real estate world is going to have to make a raft of positive environmental changes in the way that buildings are used and operated.