The British Property Federation’s recent report – Towards Net Zero – proposes a number of key policy recommendations to accelerate decarbonisation across our industry.
The main issues identified by the research will come as no surprise to those of us who regularly deal with decarbonisation, sustainable development and green leases.
Green leases, planning and building practices that factor in net-zero targets and sustainable use of buildings are constantly evolving, and many clients are unsure about how best to proceed and what position to adopt.
This uncertainty is compounded by inconsistent definitions and standards, a lack of clear guidance and by different attitudes towards sustainability. These range from very cautious to institutionally acceptable, to extremely innovative and everything in between.
On top of that, specific issues arise across industry sectors, and the location and the quality (in terms of sustainability) of assets held can also be a relevant factor.
As lawyers, we need to look to see how we can adapt legal documentation to enable clients to achieve their net-zero carbon targets, recognising the link between the environmental impact of buildings and the behaviour of their owners and occupiers, and that to achieve targets requires greater communication and collaboration.
Leveraging leases to deliver sustainable behaviours
The following proposals from the BPF’s report should have an impact on owner occupier relationships and lease provisions. Clarity on the proposed amendments to MEES Regulations and EPC ratings is essential.
The expected changes may have a significant effect on the bottom line of property owners and it will take time to update stock to the necessary standard.
Questions around access to do these works, as well as who bears both capital and operational costs, are key issues with the outcome often dependent on how focused on sustainability the parties are, and the strength of their respective bargaining power.
Well-advised owners now want specific access rights to enable them to carry out MEES-related works, and no longer try to avoid these obligations by relying on the consent exemption.
It is not just the cost of MEES-related works that interests clients – we frequently hear that capital and operational costs are a significant factor for many decision-makers. Any tax or other incentives that can encourage sustainable behaviours would make conversations about capital expenditure and returns much easier, and investment in NZC-related works more likely.
A call for data-sharing
It is no surprise to see data in the BPF report. While it is increasingly common for leases to contain obligations to share data, owner clients are reporting that some occupiers resist them, even if any data shared will be held on a confidential or anonymised basis.
Other parties agree to share data if they already hold it, but will not take on any obligations to collate new data. This reticence or outright refusal can make it very difficult for owners or other occupiers to calculate energy performance accurately.
Even if data can be collected, there are questions about quality, transparency and how it is used and measured across the industry. Consistency would surely be very welcome, along with mandated sharing of consumption data.
Making PV installation mandatory
The use of renewable energy is a huge area and we are now seeing clauses included in leases that require that all (or a minimum percentage of) energy should come from renewable sources, whether sourced by owner or occupier, as well as express acknowledgments that this may increase costs.
Property owners considering the installation of photovoltaic panels need advice on how to structure arrangements for use of the energy created. Some occupiers are still not interested in PV, and in most cases an existing lease will not allow an owner to install panels without consent.
Making this mandatory on roofs of a certain size would ensure that parties engage in discussion.
The report also recommends aligning the planning system to enable NZC transition. We already see green planning requirements in leases, for example requiring coordinated deliveries or green transport plans, and we expect to see these obligations and related lease provisions expand.
The trend towards retrofitting
The report’s proposal to establish a national retrofit programme ties in with discussions around embodied carbon in existing buildings and questions about how best to manage it.
Our clients are increasingly looking at opportunities to retrofit sites, rather than the more traditional approach of demolition and rebuilding.
This in turn ties in with changes we are seeing to yielding up and dilapidations obligations, moving away from the traditional requirement that all alterations be removed, towards selective retention of materials and plant that can be used by the owner or a successive occupier.
Green lease clauses as standard
One of the greatest challenges in relation to green leases is that there is currently no clear right to require green lease clauses to be added on a lease renewal, with the courts unwilling to impose obligations if this appears unfair to tenants.
It can also be challenging to get occupiers to accept green lease clauses in new leases, with costs and bargaining powers being the key to these negotiations. This can frustrate a party’s NZC targets.
We would welcome the ability to mandate green leases for all commercial property, whether as part of the review of the Landlord and Tenant Act 1954 or otherwise, and if this also involved some standardised green lease provisions then that would reduce negotiation time.
Green lease provisions have become more mainstream, and for owners and occupiers alike the quick measures, such as changing lightbulbs to LEDs may, soon not be enough to enable them to reach their targets.
Mere token efforts to flag sustainability bring the very real risk of accusations of greenwashing and reputational damage. Against this backdrop and as we approach 2050, we as an industry must look beyond easy wins and unsupported statements.
The BPF’s policy recommendations could go a long way to helping us achieve this.
Anastasia Klein is a partner and head of ESG at Maples Teesdale
