A green lease imposes environmental responsibilities on a landlord and their tenants. These obligations are in addition to the contractual arrangements for use of the assets.
Green leases are typically a kind of commercial lease. They’re designed to reduce carbon emissions created through the renting of a property. As such, their clauses contain measures to improve efficiency, minimise waste and collect environmental data.
What is a Green Lease?
Green leases are legal documents containing additional clauses that create environmental obligations. They hold landlords and tenants to account for the purpose of reducing a property’s environmental impact.
A green lease typically contains a memorandum of understanding, list of provisions and a set of clauses. The former is an agreement outlining the management of the property for lower environmental impact. The list of provisions then covers what’s needed to implement the agreed improvements to the property. We’ll get to the clauses of green leases further on.
Oftentimes the focus in ‘green’ pursuits is energy efficiency. However, there are other factors to be considered for commercial properties. A green lease aims to improve any number of these areas:
- Regular travel to and from the building
- Waste generation
- Consumption of energy and water
- Initial and ongoing refurbishments
As outlined in the NHS green leases framework, they can be beneficial for the building owner as well as its occupants.
What a Green Lease Means for Tenants
Tenants will experience the effects of any changes made to the property by the lease. This means they might have to make operational considerations. For instance, measures to improve ventilation could result in less usable space. Installing new materials and regularly recording environmental data can cause further disruption.
The property improvements outlined in a green lease is a long-term investment. As a result, tenants need to consider if they’ll be making consistent use of the property for years to come. In times of financial uncertainty, this can be a barrier for potential tenants when green leases are involved.
On the other hand, environmentally friendly buildings can help businesses achieve goals. Less energy use means less cost. A sustainable property can contribute towards a company’s net zero carbon objectives, such as scope 1-3 emissions. Green improvements also tend to be quality-of-life improvements for employees. This can in turn cause improvements in staff productivity and retention rates.
What a Green Lease Means for Landlords
For landlords, these commercial leases can increase asset value. Environmentally friendly measures are highly valued amongst sustainability-conscious tenants. Higher demand lets the landlord fetch a higher price.
Improvements made through a green lease also offer landlords an effective option for marketing the property. For example, a factory that inherently uses less energy than most others is sure to be attractive to manufacturers. Conversely, a space that scores low for environmental performance is unlikely to draw in business tenants. As many of these measures create lasting change, the lease can therefore improve property value long-term.
The landlord will pay the cost of any environmental improvements included in the green lease. Although, in the drafting of the lease service charges can be added to recover these costs.
Common Clauses in Green Leases
Green lease clauses are separated into ‘light’ and ‘dark’ categories. The former outlines responsibilities that are less demanding, while the latter concerns measures requiring more commitment. Dark green clauses are often clear cut, being measurable through quantifiable targets.
Here are some examples of green lease clauses to improve environmental management:
- Obligation for tenant to separate and recycle all waste materials(light/medium)
- Tenants must, as so far is practical, use materials from sustainable sources on the premises(dark)
- Tenant to keep equipment working properly/efficiently(light)
- Permission to install alternative energy sources – solar panels, wind turbines etc(dark)
- Additional substances added to tenant’s hazardous and prohibited list(dark)
- Efforts should be made to switch off lights, heating, air conditioning and other property systems when not in use(light)
How to Draft a Green Lease
In the UK, there’s no legal requirement to green lease commercial properties. As such, there isn’t a definitive approach when wording a green lease draft. Whether you’re a landlord or a tenant though, commercial conveyancing solicitors can help draw up a green lease draft. For tenants, Toomey Legal will figure out which green lease improvements will help your business reach its goals. For landlords, we can help provide insight on whether a green lease is the right long-term value judgement. Our experience allows us to draft green lease agreements that are win-win.
Recently there have been big changes to the Minimum Energy Efficiency Standard in the UK. From April 1st a property’s energy performance certificate (EPC) applies for the continuation of any existing commercial property leases. If the EPC rating is substandard the landlord is liable to a penalty unless they have a valid exemption.
During their conveyancing process, solicitors have a duty of care to inform their clients about MEES, environmental property issues and options like green leases. This is because they’re important factors in whether to buy or sell. If you come on board with Toomey Legal, we’ll be with you to provide advice every step of the way.
For commercial conveyancing solicitors services anywhere in the Northeast, get in touch today.
Q: Is a Green Lease Legally Binding?
A: Light green clauses, as well as agreements made in the memorandum of understanding, are not legally binding. Dark green clauses are legally binding.
Q: Can green leases be used for residential properties?
A: Green leases traditionally relate to commercial properties due to their focus on carbon emissions. However, there can be some light green clauses within residential leases. This might be done by the landlord to maintain the value of their asset and attract new tenants.