News

Green Leases for Commercial Property
December 5, 2023

More commercial landlords are adopting sustainable and ethical solutions to their property development and management practices.

This has been partly imposed by legislative change, which has seen environmental influences increasingly impacting UK property law.

Commercial landlords have had to abide by minimum requirements for energy performance certificates (EPC) in business premises since April 2018 following the introduction of the Minimum Energy Efficiency Standards (MEES) under the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015.

The requirements under MEES were further tightened earlier this year when it became unlawful to continue to let a commercial property with an EPC of F or G.

However, environmentally friendly solutions are also becoming more popular in the commercial real estate market as forward-thinking landlords recognise their value in optimising returns and minimising risks.

Obligations on landlords will only become more stringent as the government strives to meet its commitment to become net zero by 2030. Evidence also shows that prospective tenants are more likely to be attracted to premises that boast green credentials.

This shift in the landscape has contributed to more demand for sustainable products and solutions among commercial landlords, with green leases, in particular, gaining in popularity.

According to property consultancy company Jones Lang LaSalle’s 2021 Responsible Real Estate study, around 42% of investors already use green leases, with a further 37% planning to have them in place by 2025.

So, what are green leases and why the growing appeal?

In this blog, our Commercial Property Solicitors answer some frequently asked questions about green leases for commercial property.

What are green leases?

According to property agent Savills, real estate is currently responsible for 40% of global annual CO2 emissions and 40% of natural resource use. If redevelopment continues at the typical rate, 80% of buildings standing today will still be in use in 50 years’ time.

This means that efforts to tackle climate change issues in the real estate sector cannot solely focus on design and construction but need more sustainable long-term solutions for existing properties.

One such solution is the implementation of green leases.

Green leases contain a series of additional clauses that impose an obligation on the landlord and tenant intended to help manage and improve the environmental and social performance of a building.

What does a green lease include?

Clauses and provisions that are included in green leases vary. Common examples of additional responsibilities and obligations on landlords and tenants to minimise carbon emissions can include:

  • Energy efficiency measures, including maintaining an EPC.
  • Data sharing, including, for example, utilities consumption.
  • Waste reduction and management.
  • Using sustainable materials for repairs and alterations.
  • Water efficiency.
  • Measures to comply with statutory environmental standards such as MEES.

How will including ‘green’ provisions affect standard commercial property leases?

Introducing green lease clauses could impact several different areas of a commercial property lease. These could include provisions relating to:

  • Service charge. Landlords can build the costs of improving the environmental performance of leased buildings into the service charge costs.
  • A lease could state that the tenant must not carry out alterations which may negatively affect the EPC rating or environmental performance of the building.
  • Reinstatement at the end of the term. A tenant would not need to reinstate alterations at the end of a lease term when it would adversely affect the environmental performance of the building.
  • Remedies for breach. Forfeiture for breach of green lease clauses would be considered unfair.

If you are a commercial landlord who requires tailored advice on how to utilise green lease clauses in your lease agreements and other property contracts, please contact Muscatt Black Graf.

Our experienced commercial property solicitors have a wealth of experience acting on behalf of business clients for properties ranging from shops, offices and industrial units to retail and leisure developments and large residential estates.

If you wish to speak to one of our Commercial Property team, please contact us via contact@muscattblackgraf.com.

What are the benefits of green leases?

Commercial property green leases not only benefit the environment and contribute towards creating a more sustainable biodiverse planet but also offer numerous advantages to both landlords and tenants.

Advantages of green provisions in commercial real estate leases include:

For landlords:

  • Protect the long-term value and investment in the property.
  • Future-proof buildings against anticipated policy, regulatory, and legal changes.
  • Help buildings adhere to expected disclosure standards.
  • Assist in complying with any environmental, social and governance (ESG) or net zero strategies of clients.
  • Respond to tenant and investor demand for sustainable buildings.
  • Broaden the appeal to sustainability-focused lenders, investors, and investment funds.
  • Protect or improve asset capital and rental value.
  • Encourage mutually beneficial behaviours with tenants.
  • Incentivise tenants to use the property efficiently.
  • Enhance corporate brand and image.

Benefits for tenants:

  • Reduce utility consumption and save money.
  • Help meet net zero carbon objectives.
  • Attract and retain talent by demonstrating sustainable values.
  • Support sustainability commitments or ESG policies and requirements.
  • Understand and plan for sustainability matters.

Commercial Property Lawyers Marylebone

Muscatt Black Graf’s experienced Commercial Property and Commercial Conveyancing solicitors assist clients with all aspects of buying, selling, and leasing commercial property for owners, occupiers, investors, or developers.

We act for business owners, individual entrepreneurs, lenders, investors, and corporate and private clients on a wide variety of commercial, investment, development, and retail property transactions.

We offer a client-focused, partner-led, personal service. This means clients always have a single key contact from our London-based Commercial Property team, who will keep you updated throughout the entire process.

If you are looking for advice and guidance on Commercial Property and want to discuss your next steps, please contact Muscatt Black Graf on contact@muscattblackgraf.com.

This blog was prepared on 22 November 2023. It is not intended to be advice and should not be relied upon as such.

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