The real estate sector has one of the highest carbon footprints, it accounts for 40 per cent of carbon dioxide emissions. Government policies are emphasising the need to consider energy efficiency in properties by encouraging landlords and tenants to work together to create a more sustainable future. One way this can be achieved is ensuring properties are more sustainable by adopting a green lease.

What is a green lease?

A green lease is a regular lease that incorporates environment obligations agreed by the tenant and landlord with regards to the sustainable operation of a property. The aim of a green lease is for the tenant and landlord to work collaboratively to reduce their environmental impact. At present, green leases usually relate to commercial properties but the aim is for residential properties to adopt these leases in the near future.

Are green leases common?

Green leases are not yet the norm, but they are becoming more common for newly developed properties. Although landlords have fears that adopting a green lease would be a financial burden, they can have long-term economic benefits.

Why ‘Go Green’?

  • Improve energy efficiency

  • Reduce operational costs

  • Attract environmentally conscious tenants

  • Support sustainability objectives and enhance a company’s brand image

  • Limit regulatory exposure

What clauses can be included in a green lease?

Owners and occupiers can decide which clause to include in a lease, a few examples include:

  • A co-operation obligation whereby the landlord and tenant work together to improve the building’s energy performance.

  • Extending the landlord’s right to undertake work allowing the landlord the right to enter the property to carry out environmental work

  • Restriction on tenant’s alterations which could negatively impact the properties energy performance. This can be an absolute restriction, a qualified restriction, or a ‘lightweight duty.’

  • Joint targets for reducing emissions and waste.

  • Joint recycling targets to reduce waste and waste collections.

  • The requirement for cleaning contracts to use ‘green’ cleaning products and minimise resources (heating/lighting).

A second option: A Memorandum of Understanding (MoU)

A Memorandum of Understanding (MoU) provides landlords and tenants with a written agreement setting out how a Properties Energy Performance will be managed and improved. An MoU can be used when the parties have already entered into the Lease and it is inappropriate to mend the Lease. The main difference between an MoU and a green lease is that an MoU is not legally binding and it is intended to bring about change more quickly. It can be time limited and it does not have to cover the whole term of the lease.

It is likely that green leases will become a popular option in the future where tenants and landlords can embrace an opportunity to collaborate towards a more sustainable future. Although it is important to note a green lease will not automatically create a more sustainable future, commitment and implementation will also be required.

If you require help on drafting a lease or require comprehensive legal advice please contact Farleys today on 0845 287 0939, by email, or through the online chat below.