"Green Leases": Fad or fundamental?

There are a number of energy saving methods being introduced ranging from smart buildings to waste management but in each of these situations there is generally a need for collaboration between landlords and tenants, to ensure that responsibility is taken in the right way and by the right parties.

This has led to the invention of the so-called "Green Lease". Whilst this terminology has been around for a number of years, it is becoming increasingly more common with most of the institutional landlords catching on with at least a few clauses. But what does a "Green Lease" actually look like and why should you be interested?

What is a "Green Lease"?

"Green Leases" can take many forms and include a variety of clauses. The most frequent examples that we see are as follows:

1. Minimum Energy Efficiency Standards Regulations ("MEES") and associated EPC rating provisions – the majority of leases that come across our desks now include wording preventing a tenant from adversely affecting the energy efficiency of a property. This is generally in relation to alterations, but also sometimes involves regulating the landlord's entry for energy improvement works and the tenant's ability to obtain an EPC throughout the term.
2. Sustainability policies – institutional (and some other) landlords now tend to have standard sustainability policies with which tenants have to comply. These policies cover areas such as waste management, recycling and energy usage. These are sometimes specifically referred to in the terms of the lease or alternatively may be in the general 'regulations' provisions.
3. Environmental data sharing – with the expansion of the concept of the smart building, collecting energy efficiency data is becoming more important for landlords. Therefore, we are beginning to see clauses which govern what data can be collected and shared and how this data can be used. Given the recent changes to data protection legislation, these clauses are becoming fundamental for landlords.

What should you be considering?

As these clauses are relatively new there is no "industry standard" yet. Therefore, they need to be considered on a case by case basis.

Tenants should make sure that they fully consider the policies and the financial obligations that may result. For example, "Green Leases" may require the use of specific sustainable materials in alterations, or may require the collection of certain data which is only possible with specialist equipment. These provisions may impose hidden costs at specific properties which are unusual, so occupiers may not have considered in their budgets.

Landlords need to consider the contents of these clauses and ensure that they actually achieve their intended goals, but also that they work for their occupiers. There is no point imposing a solar energy requirement in a ground floor restaurant unit with no roof space, more useful would be an obligation to install an energy efficient extraction system and ensure that efficiency data is correctly shared.

It is important not to disregard these clauses just because they are unfamiliar and seem remote; they should be considered as equal to the operational clauses as they can have significant financial and operational consequences.

Given that these clauses are relatively new, it remains to be seen whether or not their imposition will have an impact on the rent achievable by the landlord on rent review; watch this space!

What is coming next?

With the increasing importance being put on sustainability from both a regulatory and commercial standpoint, these policies and clauses are going to become market standard. Therefore, it is important for both owners and occupiers to ensure that sustainability is considered throughout the life span of a building, from initial development or fit out to the building's functionality; "Green Leases" are here to stay!