It is probably not surprising that in a world where everyone is increasingly concerned about the environment, that the property industry is thinking about issues of sustainability of existing and new buildings, the need to accelerate the reduction in carbon dioxide emissions for those existing buildings and the carbon footprint of new buildings. As a consequence, thought is being applied to how leases can be made “greener”.
The property industry is now confronted by the Government’s climate change agenda and the property industry is leading the call for Green Leases and this is probably due to a number of factors:
- Increasingly stringent building regulations;
- Property owners under pressure to improve the energy performance of their buildings as a result of the introduction of EPC’s;
- Occupiers having their own social responsibility policies which need to be demonstrated and applied in the management of their property;
- Fund managers being increasingly obliged to make investment decisions which have regard to sustainability;
- Company directors being obliged under the Companies Act 2006 to have regard “to the impact of the company’s operations on the community and the environment”; and
- Perhaps most tellingly, the property industry getting ahead of anticipated legislative change.
- Obligations between the landlord and tenant governing the tenant’s use of, and the landlord’s improvements to, a building;
- Rent review incorporating energy efficiency measures;
- Requirements on assignment or underletting for the assignee or sub-tenant to covenant with the landlord to comply with any landlord’s environmental policy for a building;
- Requirements for tenant’s works to meet certain standards of energy efficiency including, for example, insulation and ventilation;
- Inclusion of an adjustment system for service charge contributions which may incentivise tenants to meet specific energy efficiency targets;
- Requirements for the landlord to keep in good and efficient working order all plants such as air-conditioning systems and boilers to ensure optimal energy use;
- Requirements for the landlord to apply principles of good environmental practice in providing building management;
- Requirements for the landlord to ensure that its contractors are using environmentally friendly products, when practical, in delivering building related services.
The green lease may well extend, amongst other things, to include the implementation of periodic audits of energy consumption, water consumption and the amount of waste generated and re-cycled, the consideration of the installation of renewable energy and low carbon technology where operationally possible, the improvement of the environmental efficiency of buildings and the inclusion of other sustainability initiatives.
The adoption of these new greener obligations in leases are not going to happen overnight but it may be the case on the grant of a new lease or on lease renewal that landlords and tenants start to consider the real need to make at least some of these changes going forward. Clearly Rome was not built in a day and both landlords’ and tenants’ attitudes to such changes are likely to evolve over time in meeting the challenges of the green agenda. This is, however, a topical issue, one that will increasingly be important to the sustainable environment debate and no doubt such changes will be driven by public policy considerations and legislative pressure in the future, so watch this space.
Hugh Campbell has recently joined Morrisons from Osborne Clarke in London and is developing the commercial property practice in the Woking and Redhill offices. Hugh has particular expertise in property investment, development and corporate real estate. If you have any queries or property issues that you wish to discuss, please do not hesitate to contact him on 01737 854 550 or email hugh.campbell@morrlaw.com
