In leased spaces a more traditional approach to leasing can be a disincentive for both owners and occupiers to invest in energy reduction measures or the adoption of renewable energy sources. Engaging on the shared benefits of energy efficiency by including green lease terms or energy performance clauses in the lease contract or in side-letters when negotiating or renewing leases has the potential to transform the energy performance and environmental impact of a building.
By integrating sustainability discussions into the leasing process, owners and occupiers can work together to drive financial and sustainability gains as well as achieving improvements in what the building can achieve for occupants.
Benefits of green leases
Green lease clauses are an opportunity to unlock:
- improved energy efficiency and lower operating costs
- asset value protection and improvement
- more stable owner / occupier relationships
- emissions reductions
- better ESG compliance and achievement of sustainability goals and ambitions
- increased tenant demand
What makes a lease green?
There are many issues that can be considered for inclusion in a green lease.
Energy efficiency
Owners and occupiers can commit to improving the Building Energy Rating (BER) and meeting specific energy use standards.
Data sharing
Both parties can provide regular environmental performance data on energy, water and waste metrics. For example, the owner and occupier can agree to regular monitoring of energy consumption and greenhouse gas emissions of the premises. This type of data gathering and sharing can be helpful in meeting environmental, social and governance (ESG) goals of both parties.
Waste, recycling and water
Clauses can be included to ensure waste reduction and water-saving practices are embedded in the day-to-day running of the building. Consideration can be given to minimising the amounts sent to landfill and maximising the amount that is recovered, reused, reprocessed or recycled.
Sustainable fit-out, alterations and repairs
It can be agreed that any fit-out, alterations or repairs to the building use sustainable materials and that a minimum BER is maintained.
Biodiversity
Clauses to protect, improve and monitor natural ecosystems associated with the property can be included.
Dilapidations
Clauses which modify dilapidations obligations can be included so that reinstatement at the end of the lease term does not undermine sustainability goals.
Building Energy Ratings
The lease can include provisions to prevent works being carried out to the premises that might adversely affect its BER rating or other environmental ratings.
Collaboration
The collaboration that is needed to achieve sustainability goals can be encouraged by establishing shared responsibility and review and dispute fora.
Resources
Green Leases: A Best Practice Guide for Commercial Property Professionals - Society of Chartered Surveyors Ireland
The Chancery Lane Project has published a suite of green lease clauses for use in commercial leases in Ireland which relate to:
- clauses promoting co-operation between owners and occupiers in relation to the environmental performance of buildings (Odhran’s Clause)
- repair and alteration covenants, rent review assumptions and covenants for the protection of energy and sustainability ratings (Emily and Tom’s Clause)
- clauses incorporating circular economy and sustainability principles into a service charge regime, owner’s regulations and owner’s works (Amélie and Lauri’s Clause)
The Better Buildings Partnership, in the UK, has published a Green Lease Toolkit which is available free of charge.