Green leases: an overview of green lease provisions

With a shift in focus towards sustainability and achieving net zero targets, green lease provisions can allow landlords and tenants to work collaboratively to improve environmental efficiency, sustainability and achieve net zero targets.

This article explores green lease provisions and some of their benefits for both landlords and tenants in commercial properties.

What are green leases?

The term ‘green leases’ is used to describe leases which include provisions encouraging and/ or obligating landlords and tenants to work collaboratively to improve the environmental efficiency and sustainability of a property.

Green lease provisions can be categorised into the following groups:

• Light green provisions: tend to be limited in their scope and in the level of commitment required from both parties. They are generally not legally binding.
• Medium green provisions: tend to create obligations on parties, but these obligations are unlikely to impose any unreasonable financial burden on either party.
• Dark green provisions: tend to be more onerous on the parties. They are usually specific and can be varied in scope. They are typically legally binding.

Landlords and tenants are not legally obliged to include green lease provisions within leases. It is up to the parties to agree to include green provisions along with the scope and nature of these when negotiating the lease.

Green lease provisions can be inserted into new leases or can be included in existing leases by way of a memorandum of understanding. A memorandum of understanding is an agreement between a landlord and tenant which, in this case, would set out how the environmental efficiency of a property is to be managed and/ or improved.

Reasons to include green lease provisions

Aside from the benefits to the environment there are a number of benefits to landlords and tenants in including green lease provisions within leases, including:

• There has already been an increase in legislation and policies, and more are predicted, which will require developers, landlords and tenants to consider the environmental efficiency and sustainability of a property, for example:
  • the UK as a signatory to the Paris Agreement has set legislative targets to reduce greenhouse gas emissions by 78% by 2035 compared to levels in 1990;
  • the UK Government has set a target of reaching net zero by 2050; and
  • the Minimum Energy Efficiency Standards (MEES) from 1 April 2023 will prohibit a landlord from granting a new lease or continuing to let a property where the energy performance certificate (EPC) rating is below E.

Including green lease provisions with a view to increasing the environmental efficiency and sustainability of a property will therefore assist in achieving and complying with the legislation and targets.

• Given the increased and likely further increased focus on environmental efficiency and sustainability, including green provisions in any leases is likely to be more attractive to both tenants and investors as demand for environmentally efficient and sustainable properties increases.
• Provisions which improve environmental efficiency will likely decrease a tenant’s operational costs, thus making green leases more attractive to prospective and current tenants.
• Including green lease provisions can allow both landlords and tenants to comply with their environmental and sustainable goals and objectives including any corporate social responsibility objectives.

Where to find model green lease provisions

There are numerous resources available providing model green lease provisions which can be utilised alongside existing precedent leases, including:

• The Better Buildings Partnership Green Lease Toolkit;
• The Chancery Lane Project; and
• The NHS Green Leases Framework.