Green and Pleasant Land

Marks & Spencer recently set out a new policy under which all new store leases will contain ‘green’ clauses as standard.  And more than that, M&S want to ‘retro fit’ green clauses into their existing store leases.  So called Corporate Social Responsibility policies are common, and indeed increasingly prominent, in the corporate world, but what is perhaps remarkable about M&S’s new policies is how much they stick out in the landlord and tenant world.  So where are we with the ‘greening’ of leases?

Buildings are a significant contributor to UK carbon emissions, and have accordingly been the target of a fair amount of environmental regulation.  Much of that regulation, however, has, to date, focussed on measuring energy efficiency.  It certainly does not go so far as to prescribe the content of leases.  Perhaps as a result of that pressure, a few minor ‘green’ provisions have crept into some institutional leases.  It is not now uncommon, for example, to see obligations to maintain an existing EPC energy rating.  Green shoots, perhaps, but nothing more than that.

So what do we mean by a ‘green lease’?  Broadly green leases are leases which include additional clauses encouraging or requiring landlords and tenants to collaborate to use a particular property in a more sustainable way.  The level to which those clauses go can vary.  So called ‘light green’ clauses are more akin to a voluntary code.  At the other end of the spectrum so-called ‘dark green’ clauses impose absolute obligations on the parties.

In 2009 the Better Buildings Patnership – a group of leading commercial property owners – created the Green Lease Toolkit.  This has become the main template for green leases, and was no doubt aimed at making the inclusion of green provisions in leases more straightforward and uniform.  However, as best we can tell, the uptake of green leases has been patchy, with a widespread reluctance to depart from the existing ‘institutional model’.  Why is that?

Cost remains a big factor, with the key issue here being who should pay for measures which would improve the environmental footprint of buildings.  With the shortening of lease terms and landlords increasingly seeking to grant unprotected leases, tenants are reluctant to shoulder much or any of that burden.  That has been exacerbated by the downturn, where green issues have more generally drifted down the list of priorities.

Related to cost, another key factor is value.  It is unclear what impact greener leases would have on the value of premises or on review, or indeed on the ability to raise finance.  Caution, the parent of security, has prevailed.

So where do we go from here?  For now, legislation is the primary driving force.  Next up is the Minimum Energy Performance Standards Regulations, which the Government must bring into force by 1 April 2018.  Amongst other things, these will provide that domestic and non-domestic privately rented properties may not be “let” unless they achieve a minimum EPC rating (expected to be band E).  That may well be a rude awakening for some!

The prominence of property on the UK’s carbon emissions ‘balance sheet’ makes it hard to see that the proper ‘greening’ of leases will not eventually come, despite the obstacles.  The likes of M&S certainly seem to think so, and are looking to lead the charge.

This guide is for general information and interest only and should not be relied upon as providing specific legal advice.  If you require any further information about the issues raised in this article please contact the author or call 0207 404 0606 and ask to speak to your usual Goodman Derrick contact.