A green lease is one which encourages or requires parties to consider the environmental impact of the use of a building. A wide range of environmental and sustainability issues are caught in a green lease, such as waste management, waste disposal, water consumption and net zero. A green lease would provide for specific obligations to minimise carbon emissions arising from development, operation and occupation of a property.
As always, any legal documentation will be subject to the individual requirements of the parties and their respective negotiating strengths. Various factors will influence the parties.
Many landlords and tenants will have their own ESG (environmental, social and governance) objectives that encourage or require them to move towards a more sustainable way of operating. This would include owning or occupying properties that conform with their policies.
Subject to their budgets, tenants will generally look for modern working spaces with efficient systems and corresponding lower costs. Business owners also need to consider the desires of their employees and perhaps ways to stand out (positively) from other employers in the current hard recruitment market. The working environment is a good start.
Regulatory requirements (e.g. The Energy Efficiency (Private rented Property) (England and Wales) Regulations 2015 “MEES Regulations”) must also be taken into account. Generally speaking and subject to a few notable exceptions, it is unlawful for a landlord to let premises which do not meet a minimum required efficiency standard. This includes continuing to let a property where the lease was originally granted before these regulations applied. These regulations are hardening over time and a sensible landlord will have this in mind when negotiating leases.
A green lease will contain a mix of obligations, rights and agreements to co-operate. Whilst there is currently no standard market practice position for green leases, the Better Buildings Partnership has produced a Green Lease Toolkit. This was substantially enhanced and republished in early 2024. It is a collection of green principles, guidance and green lease provisions aimed at improving the sustainability of commercial buildings. The Toolkit extends beyond green and environmental issues to also include guidance on social impact – helping with ESG objectives.
The Toolkit sets out suggestions for many key areas of leases where sustainability issues arise, including matters such as use, alterations, rent review, service charges, rights to carry out works, data sharing, recycling, metering and smart buildings.
The Toolkit takes a graded approach with clauses having light, medium and dark green options. This allows tailoring for landlords and tenants so that their sustainability ambitions can be reflected. A light green clause is the very lightest of touches, allowing flexible agreements between parties. Medium green cover obligations on the parties which are commercially reasonable and the dark green are the more stringent obligations.
At lease renewal, a landlord may try to include a range of green lease provisions but may be faced with opposition. Under the Landlord & Tenant Act 1954, the new lease must have regard to the old lease and the starting point therefore is to seek renewal on the terms of the old lease. If one of the parties requires a change in the terms, it is for that party to justify the change. A court will look at whether, by including new clauses, the landlord is merely attempting to remove existing obstacles to environmental improvement or whether it is shifting greater obligations onto the tenant. One approach is that modest improvements to the environmental provisions of a lease are justifiable as fair and reasonable improvements. Reported cases, however, suggest that landlords may struggle to persuade judges to allow this.
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*This is not legal advice; it is intended to provide information of general interest about current legal issues.
