COMMENT The “green lease” phenomenon has had an interesting evolution since its 2009 emergence with the Better Building Partnership’s Green Lease Toolkit.
There was a time when even uttering the phrase could have put a spanner in contract negotiations, but by 2021 more than half of commercial real estate investors were using them. Now, following the 2023 introduction of minimum energy efficiency standards, they are often standard – particularly in the central London office market.
For anyone unfamiliar, the Law Society states that green leases require both landlord and tenant “to manage and reduce the environmental impact of a property by way of improvements”. In other words, a building needs a two-way relationship – and if you are aspiring to deliver sustainability as an investor, you cannot do so without the support of the occupier.
It is encouraging that we are at this point, but we should not let down our guard, and improvement should always be top of our collective agendas. So, how do we keep the momentum going?
Rethinking leases
For a start, we could evolve our understanding from “green” to “responsible” by broadening its remit to encompass social value, mirroring the direction in which occupiers and local authorities are headed. What would such a lease option look like?
We think it is relatively straightforward. We take the model of the green lease – where tenants examine how they intend to use their spaces and commit to a certain level of sustainability efforts – and apply it to social value.
The fact that green leases have already brought occupiers on board with making absolute commitments means much of the heavy lifting has already been done. And social attitudes have also primed occupiers for these conversations: like those of us in the real estate industry, the next generation of occupiers are already looking for ways to improve their social impact.
These organisations have their own EDI commitments to grapple with, often driven by talent recruitment and retention goals. If we can offer a way at the start to make a serious contribution to that, why wouldn’t both parties go for it?
In practical terms, this might look like working up an agreement where a certain percentage of service charge or revenue from amenity spaces goes towards a social fund supporting local charities and schools. Such a base for a building would live on long after contractor and developer involvement has ended.
This brings us to another well-known three-letter acronym: ESG. At BGO, we try to work by the maxim that the “E” is easy, and the “G” is a given, but the “S” is sophisticated.
We have long been committed to getting that “S” right, in both our company outlook and our projects. To do so, we consistently return to what we have learnt in our environmental sustainability efforts.
Web of support
Take our flagship London project, 105 Victoria Street, where we were an early adopter of a whole-life carbon cycle assessment to ensure we were delivering the most environmentally sustainable building we could – we then applied that same concept to the social value.
The building won’t complete until 2026, but our “whole-life” social value strategy for it has been in place and gaining momentum for five years.
Working with all our delivery partners, our Social Value Charter means we are committed to supporting a range of Westminster charities through initiatives that are innovative and relevant to the local community.
The aim is that once the contractor has completed the project and the ink has dried on every occupier agreement, collaboration remains – tenants and landlord together support the charter with their time, resources and finances. This will create a strong community-based web of support for the area, fostering a genuine connection between those who live and work in it.
Strong relationships
Our approach is not without its challenges; for one thing, it is time-intensive for all partners involved. But for us, one thing is abundantly clear – the relationship between landlord and occupier is crucial to making progress.
From an investor point of view, look at things in the round, and consider both your own portfolio and the building in its holistic context. For the occupier, it’s a win-win situation. They end up running a business in a building that reflects their values and draws top talent because of it.
Perhaps in the future we will drop the adjective and they will just be “leases”, with collaborative environmental and social sustainability baked in. I would certainly welcome that. But until then, let’s move with the times and aim for “responsible” leases as much as during development.
That’s when the real change will happen.
Alexander Morris is managing director of BGO
Photo © BGO
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