The 'Green' Lease

What is this?

In our last Alert we looked at how legislation is changing

the way buildings are constructed, particularly in relation to

the standards that are expected and the information that is to

be provided about energy efficiency, for example the EPC

requirement. Whether you are a developer, owner or occupier of

real estate you need to be aware of these changes. In Part Two

of this series we examine how concerns about sustainability are

being reflected in the contractual arrangements between owners

and occupiers and what you should be asking for or be prepared

to offer in this respect. You have probably already started to

hear reference to the "green" lease, being really an

extension of the use of what is now familiar jargon such as

"green" energy, "green" buildings,

"green" products etc.

Essentially it is a reflection of the commitment of both the

owner and the occupiers of commercial buildings to create an

efficient, cost effective and sustainable workplace. It is not

simply the inclusion of provisions in a lease whereby the

parties accept additional responsibilities for the operation

and use of a building.

Global experience

In Australia the green lease has been around since September

2006 with templates for green lease schedules having been

produced for use in lease transactions involving government

agencies or bodies1 The green lease schedule is

stated to be part of the Australian Government's policy to

reduce the environmental effect of its operations, and by so

doing, to lead the community by example. The schedules contain

mutual obligations for tenants and owners of office buildings

to achieve efficiency targets and set a minimum ongoing

operational building energy standard and address the issue that

buildings can operate well below their design energy efficiency

standard without regular assessment and review. Standard

clauses are provided concerning energy performance rating,

separate metering, a building management committee who meet

regularly to share information, data and possible new measures,

an energy management plan and a disputes and remedies clause.

Eight green lease schedules have been designed for use in a

variety of different lease arrangements.

The CBI Task Force on Climate Change noted that this is an

issue on which government, business and the consumer all have a

role to play. Government agencies should certainly be taking a

leading role in reducing emissions from its buildings. However,

the figures for the UK Government's management of its own

buildings do not support this. The Commons Public Account

Committee report in December 2007 that only 9% of refurbishment

projects met required environmental standards.

Additionally only 35% of new builds and 18% of major

refurbishment projects were environmentally assessed, even

though this is meant to be mandatory under the changes to the

building regulations which we discussed in our last Alert. A

number of other countries are also adopting green leases

- for example Canada is working on developing a green

lease precedent model as is Sweden and other Nordic countries.

The UK has traditionally used voluntary codes to change lease

practices, but with little success and has, for example,

threatened many times to make the Code for Business Leasing

Premises mandatory.

Relevant Lease Provisions

As already stated a 'green lease' does not mean

simply changing the words in a few lease provisions. What is

really required is a change in the culture and behaviour of all

the parties involved in relation to the operation and use of a

building so that there is a real 'buy-in' to maximizing

the efficiency and minimizing the impact of that building on

the environment. This is not the usual cost-benefit analysis.

That said for this new relationship to work there will need to

be changes to the fundamental wording of a lease.

You will start to see (and we already have) new provisions

in leases whereby the landlord is required to manage the

property not only in accordance with the principles of good

estate management but also sustainable

management. The detail in service charge schedules and

definitions of building operating costs will all need to be

discussed and considered carefully by both owner and occupier

to make sure both parties are satisfied that the costs that can

be recovered to reflect the agreed objectives and ultimately

will assist in lowering the operating costs of the building.

Similarly if you are a landlord you should be requiring the

tenant to also behave responsibly. You can therefore expect to

see environmental commitments being imposed on tenants as...