Do landlords or tenants push for green clauses to be added to leases, or are they more often just left on the negotiating table?
The idea of green leases has been around for several years and various precedents and toolkits are available to facilitate them, including the BBP Green Lease Toolkit (see Going Green, Estates Gazette, 31 August 2013, p42).
However, there is little evidence on how frequently they are used and whether green clauses survive the negotiation process.
To begin to answer this question, we carried out a small-scale research project investigating office and retail leases registered at HM Land Registry. We examined 26 leases (21 office and seven retail) entered into between 2008 and 2013, and found that 15 of these had ?some form of “green provision” that was intended to lead to better environmental practices. Further, although there has been particular resistance to green leases in the retail sector, three out of the seven retail leases did contain green clauses.
The research was based on a small sample, partly for reasons of budget, but ?as this is the first research of this kind, we worked with a small number of leases to pilot ways of identifying properties, obtaining copies of selected leasehold titles, working out how to classify clauses and so on.
The properties were selected from ?green buildings, and 23 of the sample were BREEAM-rated properties. As the sample leases were obtained from the Land Registry, this also meant we could only look at leases of seven years or more, as shorter leases do not have to be registered. The methodology and full results of this research are set out in the forthcoming paper ‘Evidence of Green Leases in England and Wales’ (International Journal of Law in the Built Environment).
Mechanics of the report
We had to work out a way of classifying clauses as green or not green. We drew ?a distinction between clauses that are designed to facilitate the property being used in a resource-efficient manner and which take account of energy efficiency and other sustainability goals (such as data sharing), and those clauses that make a passing reference to sustainability issues (such as to supply a copy of the energy performance certificate), as well as those that may incidentally effect environmental performance (such as “good estate management”). Only those specifically intended to promote better environmental behaviour were counted as green clauses.
Figure 1 and Figure 1a (below) shows the green clauses that were most frequently found in the 26 sample leases.
Several leases also contained clauses?that referred to CRC costs and energy performance certificates, but we have?not counted these as green clauses. Figure 2 shows the frequency of those.
CRC clauses are those that refer to the recovery of CRC costs. Some enable the landlord to recover costs from the tenant; others expressly state that the tenant is ?not liable to pay the landlord’s CRC costs. These have not been counted as green clauses, because it is unclear whether they are designed to improve environmental performance rather than simply to recover (or not) the costs of participation in the scheme. An argument could be made that they should count as “green” given that the CRC energy efficiency scheme is intended to drive the uptake of carbon reduction measures, but there are doubts as to whether landlord recovery of costs is more likely to support this policy than leaving the costs where they fall by the scheme. The EPC clauses included here covered things such as access to enable preparation of an EPC, or requiring one party to obtain/provide copy of an EPC (clauses that prohibit conduct that damages the EPC were not included here, as they ?were classified as green clauses).
Have green leases come of age?
Our sample is too small to draw any conclusions, but a number of observations can be made. It is clear from this research that some green clauses are surviving the negotiation process. We did not have sight of memoranda of understanding, so it may be that more landlords and tenants are committed to better environmental use of tenanted commercial property than will ?be evident from looking at leases alone.
While it was encouraging to find that more than half of the sample leases had green clauses, the flip side of this is that a substantial number of leases did not contain any green clauses. This is disappointing given that our sample was predominantly ?of buildings designed to achieve good environmental performance, and the leases are for substantial periods of time (although many contain break clauses).
As green clauses are most likely to be found in post-2007 leases of green buildings, the proportion of green clauses in registered leases would be expected to ?be much lower in random samples. ?What this project shows is that although ?a variety of green clauses are being used,?it is premature to suggest that they are ?the norm, even in this sub-sector.
This article is based on ‘Evidence of Green Leases in England and Wales’, Bright ?and Dixie, International Journal of Law ?in the Built Environment, vol 6, issue 1 ?(www.emeraldinsight.com/ijlbe.htm).
Susan Bright is professor of land law at New College, Oxford University
