What is a green lease?

Posted: Monday, 11 August 2008 @ 16:27

No, it's not a lease printed on green paper or a lease of that bit of land in the middle of a village where we are all supposed to be able to graze our sheep. A green lease is one that includes obligations on the landlord and tenant to achieve targets for energy consumption.

Perhaps surprisingly, green leases are thought to have originated in Australia. The Australian Government Solicitor prepared a template lease for use in lease transactions involving government agencies or bodies. The key elements of the template were:

A commitment on the part of the tenant to achieve a rating under the Australian Building Greenhouse Rating Scheme.

A commitment on the part of the landlord to maintain the central services of the building to such standard to ensure the Australian Building Greenhouse Rating is retained.

An obligation on both parties to consider "in a reasonable and co-operative manner" whether an improved rating can be achieved during the term of the lease and, if they agree, to take whatever steps lie within their control to achieve that rating.

Both parties to commit to an energy management plan to operate the building in accordance with prevailing government policy on energy conservation.

There are a number of factors driving the introduction of green leases in this country:

Increasingly stringent building regulations require developers to build more energy efficient buildings and Green Leases may be being used as a device to attract "Green Tenants".

Property owners will be under pressure to improve the energy performance of their buildings as a result of the introduction of Energy Performance Certificates (EPCs) for commercial premises and Green Leases may have a key role in enabling the implementation of the recommendations that will form part of EPCs.

Occupiers have their own corporate social responsibility (CSR) policies and will wish to be able to demonstrate that such policies are being applied in relation to the management of their property.

The commercial property industry is trying to anticipate legislative pressure that may manifest itself in the same way as it has done in Australia.

Pension Funds (which are frequently landlords of commercial premises) have duties to their beneficiaries and there is a growing view that these duties oblige fund managers to make investment decisions that have regard to issues of sustainability.

Company directors have new duties under Section 172 of the Companies Act 2006 to have regard "to the impact of the company's operations on the community and the environment".

Whilst the aims are laudable, the provisions that impose obligations on the parties may have some unforseen consequences:

For landlords, the level of rent on review may be lower if the green provisions are deemed to be onerous on the tenant .

For tenants, the cost implications of the green provisions may only become apparent some way into the lease.

As these provisions are largely unknown and untested in this country, the uncertainty surrounding them may make green leases more difficult to sell on .

If you want to find out more about green leases or would like to adopt a green lease as your standard template then contact commercial property lawyer, Steve Petty on 01926 629005.

Steve Petty, Solicitor

This blog is not intended to constitute legal advice, nor is it intended to be a complete and authoritative statement of the law, and what we say might be out of date by the time you read it. You should always seek legal advice to confirm whether or how any information in this article applies to your particular situation. We offer a free telephone consultation to discuss your particular circumstances.

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