The future's green

So, you are sitting in your office and your client comes on the phone and says he wants to go green. He has heard of this thing called a green lease and he wants to do his bit for the environment and would like to use this on the next lease he grants. Panic!

This article is intended as a practical guide to using the green lease which has been formulated by the Better Building Partnership (BBP) so that when that client phones you will be ready to hit the ground running.

The BBP comprises such august names as British Land, Canary Wharf, GE Real Estate, Grosvenor, Hammerson and Land Securities. It also includes representatives from the British Council for Offices, the British Property Federation, the Office for Government Commerce, the Royal Institution of Chartered Surveyors and law firms Eversheds, Pinsent Masons and Nabarro. There was also close liaison with the RICS Joint Working Group on Commercial Leases Green Lease Sub-Group.

The group believed it was essential for owners and occupiers to work together to improve the sustainability and reduce the environmental footprint of commercial buildings. It developed a set of best practice recommendations together with a suite of model clauses for inclusion in new and renewal leases.

The BBP felt that waiting for new leases or renewals would result in change coming about too slowly so they also proposed that the parties to existing leases enter into a Memorandum of Understanding. This memorandum would not be legally binding and would not vary the terms of the existing lease. However, the intention is that the memorandum would constitute a collaborative framework within which the landlord and tenant can agree both generic and specific actions in relation to the environmental issues. The BBP recommends that the memorandum is preserved and continued through any change of ownership.

The overriding principle underpinning these best practices and clauses is that a landlord or a tenant should not be penalised in any way for trying to improve the energy efficiency or reduce the energy consumption of a building.

Energy efficiency and data sharing

On a sale or grant of a lease, it is compulsory for the landlord to produce an energy performance certificate at its expense. This measures the energy efficiency of the building and contains suggestions for improvement to the energy efficiency of the building. The BBP suggests that owners and occupiers should share data on energy consumption. As a minimum, annual consumption data should be shared between owners and occupiers. It also suggests sharing data on water consumption and production and on recycling schemes.

Tenant's alterations and extra rights of entry for landlord

The proposed clauses give landlords additional rights of entry on to the tenant's premises for the purposes of assessing energy efficiency and for the purposes of carrying out works aimed at more effective management of, or reducing, energy or water use or waste production and for setting up and managing recycling schemes. This is subject to a proviso that the works cause as little disruption as is reasonably possible and do not adversely affect the tenant's beneficial use and occupation of the premises. Both landlord and tenant have the ability to install separate sub-metering of common parts or premises so that accurate individual consumption can be measured. While the clauses provide that the landlord can challenge any proposed tenant's alterations which may affect the EPC, and if a new EPC is required the tenant has to pay for it, they do not contain provisions providing that the landlord cannot withhold consent to tenant's alterations which improve the energy efficiency or reduce energy or water consumption within the tenant's premises. This should be considered by tenants who are keen to go further than the landlord is willing to go. There are provisions in the memorandum providing that the landlord is to give reasonable consideration to waiving any entitlement it may have to require reinstatement of alterations carried by the tenant where such alterations improve the environmental performance of the building and/or the premises and the landlord considers it will not need to remove or reinstate such alterations at the end of the lease.

Environmental management plan and Building Management Committee

The BBP suggests the landlord procures the preparation of an environmental management plan for the building either on its own or in conjunction with a Building Management Committee. The plan sets out how the building is to be run in a sustainable way that minimises its environmental impact. The data collected from the data sharing between the parties is to be used in the preparation of the plan. The plan should have annual targets for reduction of energy consumption, carbon emissions, water use and waste at the building and the premises, the increase, where possible, in the use of plant and equipment based on renewable technologies, renewable energy, recycling of waste, water and captured rainwater for the building and the premises.

The committee is to comprise a representative of the landlord (or its managing agents), the tenants and such other third parties deemed necessary. The committee is to consider the adequacy and improvement of data sharing on energy and water use and waste production/recycling, and to agree targets and strategies to reduce energy use and water consumption, improve waste management in the building and to consider green travel options.

Problems with the green lease toolkit

The box on the right contains a selection of some of the items listed in the schedule to the Memorandum of Understanding and gives a flavour of the types of innovations, initiatives and schemes a landlord could implement in a building. Some of these items are extremely expensive to implement and would be completely impractical with older, listed or period properties.

Renewable energy in this country is in its infancy with only a couple of providers actually offering truly renewable energy (Ecotricity and Green Energy). Most energy providers offer a so-called 'green tariff' but the energy is far from being renewable. It is still very difficult to retro-fit existing properties to install systems such as heat sinks, grey water drainage systems and rainwater harvesting. A lot of these measures have been absorbed into the planning system and are routinely imposed as conditions on any planning permission for refurbishment or construction of a new building, e.g. green travel plans, cycle racks, shower and changing facilities, shuttle links etc.

It must be emphasised that the provisions in the Memorandum of Understanding do not contractually bind the parties and some of the obligations to be incorporated in the lease are a little vague and represent more of a spirit of cooperation than hard contractual obligations which must be complied with. Some cynics might say that it is better to wait for the government to make these measures compulsory by implementing legislation just like they have with energy performance certificates. Other critics of this green lease initiative say that it is all very well rolling out proposals in London where the capital city has a first-rate transport system, but it is much harder to embrace these provisions in other cities or in semi-rural locations.

In the current economic climate, landlords and tenants may wait a very long time for legislation to be introduced and in the meantime there is a lot that can be done. Homeowners have embraced recycling and energy efficiency and have seen a direct and often immediate impact on lower fuel bills. Some of these benefits can be experienced by commercial tenants, but sometimes it feels like you are fighting a losing battle. Many local authorities do not offer businesses the ability to recycle their waste and so companies have to pay to recycle. It costs businesses money to become greener and, in these times, it is enough for businesses to just stay in business.

The reason the green lease toolkit is a good idea is that it gets landlords and tenants thinking about working together instead of independently, it establishes yardsticks which will enable parties to measure progress and it gives landlords and tenants the chance to try out these ideas and then provide constructive feedback on what works and what is impractical. This can then be fed back to the BBP which can modify the documents to take on board this feedback.

This means that when draft legislation is prepared and a Green Paper is circulated, the consultation process will be informed by actual practical experience rather than vague unsubstantiated theories.