What is a green lease in commercial property?

When asked about priorities for the coming years, most business owners will state that enhancing their environmental, social and economic sustainability policies is a key area of focus.  There are various ways that a business can reduce their carbon footprint and make a difference in the fight against climate change, and having a green commercial property lease is growing in popularity.  Meggie Sheldon, a Solicitor in our Commercial Property department, explains more about what a green lease is, the benefits for both landlords and tenants in negotiating leases of this nature and how we can assist you in the future.

What is a green lease?

When a tenant rents their business premises from a landlord, this will be subject to a commercial lease which will specify the terms of that rental period, the obligations placed on both parties and the rights a tenant will have for their use of the premises.  A green lease is one that includes environmental responsibilities and duties for both parties with the purpose of making their premises more sustainable and environmentally friendly.

What initiatives could be included in a green commercial property lease?

Reducing the environmental impact of your business and improving sustainability can be achieved in a variety of ways, with a green lease reinforcing your commitment to the cause.  You could adopt one of the following practices in your lease:

• Reviewing your energy efficiencies and seeking improvements such as insulation, window glazing, smart metering and efficient lighting operations
• Use of sustainable materials for any repairs, alterations or maintenance
• Reviewing the transport links to and from your premises for your employees and suppliers
• Reducing waste
• Implementing or improving the recycling facilities
• Appropriate water management and use

While it is usually the landlord who will introduce green initiatives into a lease, in order to implement such obligations, both parties must be in agreement.  During negotiations of the lease, both the landlord and the tenant must agree as to whether the initiatives are legally binding and approve the scope of the terms.  These can either be specific requirements with sanctions imposed if they are not met or general guidelines without legal obligations.  This scale is referred to as “dark green”, “medium green” or “light green”, denoting whether requirements are legally binding or mere guiding principles.

It is important for tenants to appreciate that any of these initiatives could have an impact on the service charge provisions, consent for alterations and reinstatement provisions at the end of the lease term.

Why should I consider a green lease for my commercial property?

As well as the overriding benefit for the community and the environment that can be provided by improving your efficiencies, you could also benefit from: –

• Reduced costs – reviewing the energy efficiency of premises and making improvements could reduce overall costs towards a tenant’s energy bills; a particularly important consideration during the current climate.
• Preparation for Government plans and legislation – there are two changes likely to be introduced in the coming years:
  1. The Government has committed to reaching net-zero carbon by 2050. In order to achieve this, there will need to be a 30% reduction in building energy use by 2030.
  2. By 2030, the Government is proposing to impose a minimum energy performance certificate (EPC) rating of “B”, with an interim minimum rating of “C” by 2027. The Minimum Energy Efficiency Standards (MEES) Regulations already require properties to have a minimum EPC rating of “E” before new leases can be granted and this requirement will enhance the Government’s commitment to reduce the impact buildings have on the environment across the UK.
• Attractive prospect for investors – while there would be an initial outlay to switch to more energy efficient suppliers or make improvements to the building, over time, a greener building may also increase its value, benefiting the landlord directly and also potentially catching the eye of keen forward thinking investors.
• A positive image as an employer – climate change is not only on the agenda for the Government and business owners but also in our employees’ lives, with many of the younger generation using the values and environmental commitment of a business to determine their employment options.

Those who are seriously reviewing their environmental policies should consider the benefits of green leases, regardless of the size or the age of the premises. Of course, the obligations imposed by green leases should be carefully considered; awareness of the advantages and disadvantages will be important to understanding the right path for you and your business.

To discuss your lease negotiations with Meggie or a member of the Commercial Property department, contact us today on 01722 412000 or email meggie.sheldon@parkerbullen.com.

ENDS

This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.  All content was correct at the time of publishing and we cannot be held responsible for any changes that may invalidate this article.