On 29 January 2024, the Better Buildings Partnership launched its updated Green Lease Toolkit. This much-anticipated selection of green lease drafting and accompanying best practice guidance for commercial buildings (including guidance on heads of terms) is likely to prove highly influential for lease drafting. There are versions for England and Wales, Scotland and Northern Ireland.
What is green lease drafting?
The concept of green lease drafting has been around for well over a decade. The Law Society in its 2023 guidance note Green leases and Minimum Energy Efficiency Standards defined it as “drafting that provides for the landlord and the tenant to undertake specific responsibilities and obligations to minimise carbon emissions arising from the sustainable development, operation and occupation of a property”.
What is the Better Buildings Partnership?
It is a not-for-profit collaboration of leading property owners who are working together to improve the sustainability of commercial buildings. The Better Buildings Partnership has a number of different case studies, projects and toolkits, details of which can be accessed via its website.
What did the previous toolkit achieve?
Energy performance certificates were introduced in 2007 and the BBP launched its first Green Lease Toolkit in 2008, updating it in 2013. The toolkit provided a clear framework to support greater owner and occupier engagement and collaboration in relation to reducing the environmental impact of commercial real estate. The toolkit, which had significant support among the industry, was a groundbreaking document which influenced much of the green lease drafting regularly encountered.
Why has the toolkit been updated?
It is over 10 years since the toolkit was last updated and it did not, until now, take account of the Minimum Energy Efficiency Standard Regulations. More generally, thinking and approach has developed greatly in relation to environmental, social and governance issues, which are now important to much of the property industry. The time was right for a significant review and updating of the toolkit.
Who produced the updated toolkit?
The BBP worked with a drafting committee and a steering committee to oversee the process. The committees comprised representatives from the property industry and law firms.
Does it have regulatory status?
The toolkit has no regulatory status with no penalties for non-compliance. The toolkit is the most developed and widely considered set of green lease drafting in the UK and the quality and variety of the drafting is likely to prove highly influential.
What is the toolkit’s aim?
Sarah Ratcliffe, chief executive of the BBP said: “We hope that this significant review of the toolkit will enable the whole industry to realise the potential for positive and open dialogue, ultimately driving the delivery of better buildings.”
Is there a choice of provision for topics?
For the majority of the green lease topics covered in the toolkit, there is a choice of light, medium or dark green drafting. This reflects different levels of obligations on the parties, ranging from a flexible agreement, through to obligations that must be commercially reasonable, to more stringent obligations. The user of the toolkit can decide which approach is most suitable, taking account of its own attitudes and policies and the particular property and transaction. A mixture of light, medium and dark provisions may well be appropriate in a lease.
What are the “green lease essentials”?
The toolkit includes “green lease essentials”. The essential provisions are highlighted in a statement of intent from the BBP that appears on its website:
- Cooperation;
- Building management/sustainability group;
- Sustainable use (new in the toolkit);
- Data sharing and metering;
- Extension to the landlord’s right to do works;
- Tenant’s alterations and reinstatement;
- Energy performance certificates;
- Recycling of waste (for landlords and tenants) (new); and
- Renewable energy (new).
The purpose behind highlighting the essentials is to help to provide a vision for minimum expectations on what green lease drafting should include (albeit without any regulatory context).
What other provisions are included?
The toolkit has drafting for other green lease topics. While they may not be essentials, they tackle important issues and due consideration should be given to their inclusion in leases. They cover:
- Minimum social safeguards/social impact (new and see below);
- Restrictions on the landlord’s right to do works;
- Circular economy principles for works (new);
- Rent review;
- Standards such as BREEAM (new); and
- Service charge (new).
Who is the toolkit for?
The toolkit is intended to be a balanced document. A crucial aspect of the toolkit is the framework that it provides to encourage owners and occupiers to work together, delivering sustainable outcomes for the real estate sector. A diverse group of stakeholders produced the toolkit through a collaborative process. This is reflected in the variety of drafting with an emphasis on working together, but also recognising that different organisations are at different stages of their sustainability journey.
Does it go beyond green issues?
For the first time, the toolkit extends beyond environmental matters, including drafting and guidance in relation to social impact. The provisions are not a “green lease essential” – this reflects that there is no “one size fits all” for a commercial lease. The suggested drafting relates to the landlord and the tenant responding to social impact surveys and requires both parties to comply with applicable anti-slavery and trafficking laws.
Can the drafting be used in any lease?
The drafting can be used in any commercial property lease although may require some adaptation for the particular lease. While the drafting is flexible in its application, it has been drafted to fit within the versions in force on 29 January 2024 of the widely used Model Commercial Lease of part of an office building and for Scotland for the Property Standardisation Group lease of part of an office building which is based on the MCL. The MCL is a popular document and its existing sustainability provisions have been influential in the development of green lease drafting in the industry. It should be noted that at this stage the MCL Committee has made no decision on whether to adopt any of the toolkit’s drafting in the MCL.
Should I change existing leases?
Not necessarily. It may be that many of the toolkit’s provisions are already included in the existing lease and that other toolkit provisions may not be appropriate for the particular property, property owner and occupier. The toolkit nevertheless provides the vision of what minimum expectations should be for green lease drafting. We expect landlords will want to review their precedents and decide which of the provisions they want to include.
Does it cover energy performance certificates and MEES?
An important change from the previous toolkit is that it specifically addresses the Minimum Energy Efficiency Standards for England and Wales. Landlords, in particular, are concerned about potential financial and reputational penalties from having a let property that has a sub-standard EPC rating. MEES is addressed in the toolkit’s drafting on “extending the landlord’s right to do works”, in terms of the impact on a landlord’s right to claim the so-called “consent exemption” under MEES.
Do tenants have to reinstate alterations where this will adversely affect environmental performance?
The objective of the toolkit’s reinstatement provision is for the landlord to take account of the impact on the property’s environmental performance when it considers whether reinstatement of all lawful tenant’s alterations is required. This is with the aim of reducing the amount of waste generated when the tenant gives back the property. The answer to the question is that the alterations may not have to be reinstated if this will adversely impact environmental performance.
What environmental performance data has to be shared, at whose cost and how is confidentiality protected?
Data sharing has always been a fundamental aspect of green lease drafting, especially in view of the importance of benchmarking. The toolkit has only one variety of data-sharing provision, reflecting that this issue is of critical importance, is not disproportionately onerous given the value of sharing the data and should be something landlords and tenants are able to agree.
The data relates, as a minimum, to the use of energy, water and waste within the let premises and the wider building, and there should be an obligation to respect confidentiality. The drafting also encourages the installation of smart meters. The toolkit in effect provides that the landlord and tenant each bear their own costs of data sharing. As a starting point, meters are installed at the landlord’s cost, but the parties are encouraged to consider how the cost should be dealt with.
Will the toolkit be kept up to date?
The toolkit is a dynamic resource and will be updated to reflect changes in law and practice.
Drafting example: Cooperation provision
Light green version
The Landlord and the Tenant:
(a) confirm that wherever reasonably practicable they intend to promote and Improve the Environmental Performance [and Social Impact] of the Premises [and the Building]; and
(b) agree in good faith, but without legal obligation, to co-operate with each other to identify appropriate strategies and initiatives to Improve the Environmental Performance [and Social Impact] of the Premises [and the Building].
Dark green version (extract)
The Landlord and the Tenant:
(a) confirm that they intend to Improve the Environmental Performance [and Social Impact ] of the Premises [and the Building];
(b) must co-operate with each other to identify appropriate strategies and initiatives to Improve the Environmental Performance [and Social Impact] of the Premises [and the Building] with a view to achieving at least a [X] % reduction of Greenhouse Gas Emissions year on year from the Premises [and the Building].
Resources
- Green Lease Toolkit
- Model Commercial Lease
- Property Standardisation Group – Leases based on the Model Commercial Lease
Cheryl Gurnham is a partner and Warren Gordon a senior professional support lawyer at CMS. Laura Noctor-King is head of sustainability – engagement at the Better Buildings Partnership
