The recession has provided an ideal back-drop for “green” to shed its expensive, boutique image and recast itself as a money-saver. Businesses are becoming more aware of the economic advantages that “green” brings with it and that the “first movers” will reap the finest rewards. Being “green” is no longer seen as a luxury, rather a business critical issue.
Tenants’ Changing Needs and Demands
Tenants’ and building users’ requirements are changing. Research confirms that Tenants want a building with lower running and maintenance costs. They also want flexible designs and floorplates and a lighter and better ventilated working environment in order to increase employee productivity and lower sickness rates. Concerns over CSR and avoiding risk to brand/reputation also feature highly. By occupying a “green” building they are able to send out a very positive message to customers, employees, shareholders, insurers and investors.
“Greener Buildings” In Demand
Tenants’ changing demands can only be met by occupying a “greener” building and there is now a real financial incentive for developers to build and for Landlord’s to retrofit to “greener” standards. By doing so, they avoid the very real risk of their properties lying empty or achieving lower rents/capital values.
Markets around the world are adapting and recognizing the value of “green” buildings. That value will increase as legislative controls tighten, The Carbon Reduction Commitment Scheme (CRC) commences and other “green” taxes are implemented.
Changing Behaviour- the Cost Effective Way to a “Greener” Building
Landlords and property owners, concerned about the very real possibility of a two-tier market of green/non-green buildings arising are also adapting and the focus is firmly fixed on occupier behaviour. This is seen as being one of the most cost effective ways to “green” an existing building no matter how low an energy rating it currently has. By utilizing the humble Lease to incentivize “green” improvements and energy savings and control the ability of occupiers to make “non-green” choices, real and significant improvements can result and the benefits enjoyed by both owner and occupier!
Green Leases- the Way Forward?
Whilst Green Leases are somewhat of a new concept for the UK, they are compulsory in Australia for many buildings and widely used in the USA and Canada.
The word “green” is misleading in the sense that a Green Lease promotes much more than just environmental benefits. It promotes agreement and co-operation between Landlord and Tenant as to how the building is to be used, improved and managed in a more sustainable way. Its application isn’t, as many people falsely assume, limited to newly constructed buildings- it can be adapted for all buildings, even those with listings. It can also deal with one or more areas of sustainability eg. water, waste and energy.
The traditional Lease (i.e. one without “green” clauses) is a barrier to “green outcomes” as the traditional Landlord and Tenant relationship is very much “hands off” and one based on mutual distrust. Issues arise such as:
- why should a Tenant contribute to energy efficient improvements when the pay-back period is longer than the Lease term? and
- why should a Landlord fund improvements which lower Tenants’ running and maintenance costs?-
both valid arguments.
Under a Green Lease, these problems are overcome. Why? Because the clauses are drafted to embody core principles of co-operation, partnership and mutual benefit.
Why Aren’t “Green” Leases the Norm?
The Green Lease movement is growing at quite a pace and pioneering Landlords have already introduced “green” clauses in their standard leases.
For Green Leases to be accepted, Tenants’ “buy-in” must be obtained at the negotiation stage. The value and benefits of “green” buildings must also be communicated in “commercial” language that all building stakeholders understand. Landlord’s cannot use the Lease to impose harsh energy efficiency targets or as a means of forcing the Tenant to make “green” improvements. Many commentators have suggested that the “green” tag may be unhelpful in that the focus should be firmly fixed on efficiencies and savings. Perhaps renaming as a “smart” or “efficient” Lease may be the way forward.
For further information on Green Leases please contact Ruth McCarthy partner and head of the Sustainability Team at Slater Heelis Collier Littler Solicitors.
DD- 0161 975 3827
e-mail- ruth.mccarthy@shcl.uk.com
www.shcl.uk.com
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