Green leases in commercial property

Building operations are reported to be responsible for 28% of global greenhouse gas emissions and building materials and construction contribute a further 11%[1]. This means 39% of global emissions are produced by buildings. These statistics put into context why there has been such an effort to reduce the environmental impact of the property and construction industries in the last decade. Green leases have become more common as a result of this.

What is a green lease?

A lease is considered ‘green’ if it includes provisions encouraging or requiring the landlord and/or tenant to limit or reduce the environmental impact of the building. There isn’t a specific type of document or a set checklist which makes a lease green, a lease can be considered green if it contains commitments that are intended to improve the sustainability of a building or reduce its environmental impact.

Types of green leases

The terms ‘light green’, ‘medium green’ and ‘dark green’ indicate the varying degrees of commitments that landlords and tenants can make.

Light green clauses are likely to not be legally binding, to impose limited commitments, and to improve energy efficiency. These are likely to be recorded on a Memorandum of Understanding as they are more flexible and not in a legally binding document and, for this reason, are attractive to tenants.

Dark green clauses are likely to be more onerous and legally binding, require a more significant level of commitment, and cover a wider range of environmental issues. Medium green clauses sit somewhere between light and dark. These clauses are likely to be in the lease itself or in the building policy or estate regulations (which the lease requires the tenant to comply with), giving one party legal recourse if the other is in breach of the obligations.

Examples of various clauses include:

• An obligation on the tenant to conduct repairs and alterations to equipment and premises using sustainable materials;
• A clause prohibiting the tenant from conducting any repairs and alterations that would negatively impact the premises’ EPC rating;
• Giving the tenant a right to install charging facilities for electric vehicles;
• A covenant for the landlord to have regard for good environmental practice in relation to managing and carrying out works on the building.

Advantages for the landlord and tenant

1. Reduced utility costs, resulting in the landlord paying less and the savings being passed onto the tenant in the form of reduced service charges;
2. Easier to comply with any future changes to legislation as the landlord will already be ahead of the curve;
3. Businesses can adhere to environmental, social and governance (ESG) policies and meet carbon footprint targets easier;
4. Energy efficient buildings are, generally, valued higher than those that are not;
5. Improves the attractiveness of the building to prospective buyers and tenants.

If you need any advice or assistance in respect of lease terms, please call our Real Estate team on 0113 207 0000.

[1] Embodied Carbon - World Green Building Council (worldgbc.org)