Insight

Green leases

Real Estate is responsible for both 40% of the world’s resources, and global annual CO2 emissions. 80% of the buildings standing today will continue to do so in over 50 years time. Bearing these figures in mind, efforts to curtail our emissions both domestically and globally need to stem from other sources rather than coming from new developments or innovative construction techniques.

Fresh efforts for the operation of existing buildings need to be implemented as development land in the UK is a scarce and valuable resource especially in cities such as London which has 98% of available space built on.

If no material changes are made, global temperatures could increase by 2.7 or more degrees, leading to devastating consequences for those who live in coastal areas, or places prone to flooding; if the sea level rose by 1 meter, the existence of low-lying island throughout the world would be drastically challenged, if it rose by 2 meters most of Cambridgeshire, Hull, Great Yarmouth and Glastonbury would be permanently underwater.

How do we incite change in the ever-growing, resource hungry market that is property? The answer is simple, building owners and occupiers undertake environmentally friendly measures and practices, namely in the form of the “Green Lease”.

What are Green Leases?

Green Leases incorporate additional clauses into standard form leases which provide for the management and improvement of the environmental performance of a building by enforcing agreed terms and obligations on both the owner and occupiers. These are mainly present in commercial buildings and in the context of leases rather than residential properties.

A different route is the use of a memorandum of understanding which is distinct from a green lease. These operate as an ancillary agreement that regulates how much of the buildings environmental performance will be improved by both parties. This can be updated from time to time and can generally last for any length of time, usually the term length. The use of these memorandums mostly has no binding effect and rely on the co-operation of both parties to successfully carry out. Without the collective cooperation, it provides no value, and is worth only the paper the terms are written on.

How to be  a Green Building Owner or Occupier

One of the main advantages of green leases is that the action needed to increase the energy efficiency of a building does not need to be complicated. Parties involved are not trying to re-invent the wheel, the simplest ideas will often have the greatest effect; increasing the insulation of a building to decrease energy consumption and increase efficiency is a great start. Couple this with better glazed windows as between 20%-30% of a buildings energy is dissipated through its windows, which can be even higher for some types of commercial space.

By implementing these changes, a smaller, efficient and cost effective boiler or heating ayatem can be used as less energy is being used and simultaneously saved by the building which does not need a greater demand leading to greater efficiency overall.

These are the most basic of energy saving ideas that a building owner/operator could consider, however there may be legal implications for arranging to do so. Depending on whether the works are minor or major, a licence for alterations may need to be implemented. For these green leases to be truly effective data sharing between landlord and tenant, or owner and operator is at the cornerstone to its success, if parties are unwilling to negotiate then the agreement might as well be recycled.

Secondly, there are no incentives for operators or landlords to implement green lease provisions in terms of tax reliefs or government grants to incentivise the implementation of efficient practices. It is estimated that over £30 billion will have to be spent to transform old office buildings into compliant spaces in line with the government’s environmental standards by 2030. This current climate could leave the owner with a large construction and material bill, as well as any associated legal fees whilst the building (whether in whole or part) is to be temporarily closed off whilst the works are carried out. The only incentive is if these works were carried out, the prospective market’s energy rates would be lower, the building more attractive for potential tenants and the gratification that the landlord receives in the fight against the climate crisis.

Green leases offer an opportunity for a new relationship between Landlords and Tenants

Green lease provisions have the potential to increase the efficiency, value and attraction of the building to occupiers (both current and prospective), clients, customers whilst enhancing the relationship between the owner and occupier which has previously been adversarial in nature. This relationship is strengthened through the sharing of information to evaluate which provisions are most effective and identifying which areas should be subject to improvement.

Green lease provisions are, as stated earlier, entirely reliant on the relationship of owner and occupier, such a historically frictional relationship can make room for collaboration and further obligations problematic, and parties may be unwilling to co-operate. Even if co-operation is given, will the aim of the agreement be carried out or merely attempted? These green leases and any associated provisions are only as effective as the time, money and effort that it put into them to give them any effect.

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