Green Leases

by Stephen Kay

25 September 2023

Following the recent announcement that the Government have decided the UK has gone further than other countries in reducing greenhouse gas emissions, and therefore they could introduce more flexibility in relation to its net-zero objectives, it got me thinking about the sort of lease provisions we have been seeing for a while now which are designed to encourage or require the parties to improve the environmental performance of properties.

Even if the Government may be looking to relax things a little, I doubt there is likely to be any relaxation when it comes to landlords requiring their leases to be ‘green’.

From a landlord’s perspective, there are a number of reasons why green lease clauses are attractive, including future-proofing their building from an energy efficiency point of view, and complying with environmental, social and governance (‘ESG’) policies.

For a tenant, increasing energy efficiency can result in lower day-to-day running costs, and may also help the tenant to be able to sublet the premises to a third party should the need arise. Of course, tenants may also have their own ESG requirements to consider.

From experience of negotiating green provisions in leases over the past few years, it has become obvious to me and my colleagues at EMW that to have the best chance of them successfully resulting in meaningful improvements to the environmental performance of a property, green lease provisions need to be measurable and enforceable, but without impacting on a tenant’s ability to use the property for its operational requirements or significantly increasing their financial liability under the lease.

There is a wide spectrum when it comes to what shade of green these lease provisions are, and with careful drafting and negotiating, it is possible to lighten the tenant’s burden of a ‘dark green’ clause suggested by a landlord, while still having the tenant committed to working towards improving the property’s environmental performance.

The concept of green leases is a huge and constantly evolving area. While the Government may be reining back a bit with their own green policies, it is inevitable that landlords will be continuing to colour their leases with as much green as they can.

Since EMW were recently awarded B Corp status, environmental performance, sustainability and energy efficiency are high on our agenda. Having also recently switched to a fully electric car, it is also high on mine!

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