Green Leases
JUNE 2009
With there being an ever real prospect of Government intervention to impose restrictions on the forms of commercial leases in order to address climate change, the ‘Better Buildings Partnership’ (“BBP”) (an initiative developed by the London Climate Change Agency) has created the ‘Green Lease Toolkit’. This is a combination of best practice recommendations and draft documentation, and notably includes clauses that can be used in order to make a lease ‘green’.
The idea behind the ‘green’ lease is to place mutual responsibility on the Landlord and Tenant to take measures to achieve improved sustainability and energy performance of commercial property. To date this has been difficult to achieve as Landlords are often reluctant to invest in energy saving measures which effectively only benefit the tenants by lowering their utilities bills. On the other side of the coin, tenants of shorter leases tend to be resistant to contributing towards the cost of installing renewable energy technology, from which they will not benefit for long. Accordingly, the theory is that the integral obligations in ‘green leases’ compel both parties to play their part.
Broadly BBP’s ‘green’ clauses provide for:
- Obligations between the landlord and the tenant governing the tenant’s use of, and the landlord’s improvements to the building.
- Rent Review provisions incorporating energy efficiency measures.
- Requirements on assignment or underletting for the assignee or sub-tenant to covenant with the landlord to comply with the landlord’s environmental policy for the building.
- Requirements for tenant’s works to meet certain standards of energy efficiency (e.g. insulation and ventilation).
- The inclusion of an adjustment system for service charge contributions, penalising tenants who do not meet specified energy efficiency targets.
- Requirements on the landlord to keep all plant in good and efficient order.
As an alternative to the wholesale ‘green’ lease, BBP has created a model Memorandum of Understanding, which would require the parties to comply with green obligations (such as targets to reduce energy usage). This would run alongside a new or existing lease rather than integrating the ‘green’ provisions within the lease. It would be up to the parties whether the Memorandum was legally binding or not, but this route is clearly simpler than re-writing existing forms of lease.
The BBP ‘Toolkit’, which has been endorsed by a number of large institutional landlords, offers a good and digestible starting point for the creation of ‘green’ landlord and tenant relations, although it remains to be seen how many landlords and tenants will use the Toolkit’s provisions in any meaningful way, at least that is until forced to do so by legislation.
If you would like further information on the content of this newsletter please
contact James Daglish on 0207 404 0606 or jdaglish@gdlaw.co.uk.
This is a guide for general information and interest and should not be relied upon as providing specific legal advice. |
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