Occupiers and landlords of commercial property are beginning to see the value in well-managed, energy-efficient buildings. As a result, we are seeing more and more demand for ‘green leases’.
But what are green leases exactly? Why are they so en vogue? And what should landlords, investors and occupiers of commercial property be aware of when entering into a green lease?
Our occupier advisory partner, David Thomas, joined forces with Liz McKillop Paley, partner specialising in investment at law firm, Shoosmiths LLP, to explore.
Green leases, also known as environmentally sustainable leases or responsible leases, are legally binding agreements which obligate both the landlord and a prospective tenant to promote the energy efficiency and environmental sustainability of the building being leased.
They have, in fact, been around for many years in various guises, coming in and out of fashion over time.
Today, they are very much back on the agenda, particularly now that the first phase of the Minimum Energy Efficiency Standards (MEES) has been implemented. Invariably, any new lease will now have some form of green clause in it, to promote the implementation of a range of energy-efficient measures.
David Thomas explains: “Green leases vary from ‘light’ to ‘dark’ green depending on the extent of the sustainability provisions contained within them. They can have many benefits – from the obvious merit of reducing a building’s environmental impact and encouraging sustainable building practices, to the more practical bonus of lowering utility bills and operating costs for both landlords and tenants.”
“With Environmental Social and Governance (ESG), climate change and the energy crisis firmly on the agenda of most Boards (both investor and occupier), a building with green credentials is likely to be more attractive to tenants and investors.
“It also has the potential to increase a property’s value if the building in question boasts renewable energy sources or can support a business in its drive to reduce waste or greenhouse gas emissions. However, until there is a market standard, valuations will struggle to reflect the market and it will be driven by demand.”