Partner Article

A Darker Shade of Green?

With Watson Burton LLP Law Firm

With emerging Government policies on environmental issues (notably the Energy Performance of Buildings Directive, Part L Buildings Regulations and the Corporate Social Responsibility provisions of the Companies Act), the property industry is facing pressure to implement greener leases. However, at present, many property suppliers are reluctant to incur costs improving the efficiency of a building for the tenants to reap the benefits through lower bills. Equally, tenants are reluctant to fund energy efficiency and sustainability programmes when the payback period may not arise during the lease term. The development of Green Leases, which contain a clear framework of mutual responsibilities and obligations and incentives for landlords and tenants with regard to improving and measuring energy performance for a property, may help to overcome such obstacles.

Green Leases are already commonplace in Australia, where the Australian Government has published a suite of 8 Green Lease Schedules (GSLs) which set out key provisions dealing with the development and implementation of an energy management plan (EMP), stringent reporting and auditing and remedies for non-compliance/ financial penalties. The focus of the EMP is on whether an improved rating can be achieved during the term of the lease and what steps lie within each party’s control to achieve that rating.With the uptake in Australia, the question is now being asked in the UK whether sustainability issues can be addressed within the legal framework of a conventional lease or whether a whole new industry standard should be adopted.

In answer, a distinction is emerging between “Light Green” and “Dark Green” leases. Dark Green clauses, for example rent abatement/ increase if either the landlord or the tenant respectively fails to achieve benchmarks in the EMP or gross rent to incentivise the landlord to ensure the building is energy efficient, would signal a radical departure from the conventional lease. Whereas Light Green clauses, for example the adherence to an EMP or adjusting service charges to resource efficiency or prohibiting alterations which adversely impact the energy performance of a building, can easily be accommodated within the conventional lease and are more likely to be embraced by the property industry.

Hermes are reported as being the first UK institution to agree a Green Lease and it is understood that the shade of green is on the lighter side. It seems that, despite legislative pressure, the colour of the season is light green.

If you have any queries relating to this article or any other property matter, please contact Nicola Marriott at Watson Burton LPP on 0113 235 5455 or email nicola.marriott@watsonburton.com.

This was posted in Bdaily's Members' News section by Ruth Mitchell .