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Green lease clauses are these the future, asks GVA's Alastair Mant Head of Sustainability

wantspacegotspace.co.uk - Green lease clauses are these the future, asks GVA's Alastair Mant Head of SustainabilityWith the continued emergence of guidance and legislation on a host of sustainability issues, and with corporate social responsibility rising up the boardroom agenda, green leases are increasingly finding favour with both property owners and occupiers.

What is a green lease?
Put simply, it is a standard lease that incorporates clauses, to assist owners and occupiers with running their premises more sustainably. Specific obligations and targets are set with regards to the environmental performance and energy efficiency of the building.

The parties involved can incorporate as many green clauses into a lease as they like and thus green leases are often categorised into different shades of green.
Light green leases set only general obligations on the parties, such as an agreement that they will work together to improve the environmental performance of the property. Simply opening the channels of communication in this way is broadly beneficial.

In contrast, dark green leases set specific obligations and targets in a legally binding agreement, which can result in penalties should the targets not be achieved. For example, the parties agree to meet set recycling rates.

The most important factors that should be addressed is the timely distribution of accurate utility data and the management of any financial obligations, for example those associated with the Carbon Reduction Commitment Energy Efficiency Scheme (CRC). Accordingly, popular clauses include an obligation to create a Building Management Group (BMG), where parties meet regularly to discuss issues such as energy consumption and recycling targets and an obligation to keep up to date records so that future targets can be set and reporting requirements met.

The incorporation of green clauses is not limited to new leases. Parties can enter into a supplementary non-legally binding Memorandum of Understanding (MoU) that sets out specific obligations, to sit alongside existing or new leases.

Green leases originated in Australia, where they were introduced in September 2006 for compulsory use within the public sector and have since been expanded (on a voluntary basis) into the private sector.

Why go green?
In the UK, green clauses are not compulsory, and their uptake has been slow, but they are gaining momentum due to a number of factors:

• A rise in the frequency and scope of occupiers’ and owners’ Corporate Social Responsibility (CSR) policies.

• Rising operational costs of energy, water and waste disposal.

• Increasing regulation regarding both reporting of sustainability performance and minimum standards.

The continued emergence of government legislation on sustainability issues is forcing businesses to re-evaluate the way they operate properties they either own or occupy. The CRC Scheme requires participating organisations to annually report their properties’ energy consumption and pay for each associated tonne of CO2.
Separately, from September 2013 the London Stock Exchange Main Market Listed Companies (c.1,400), which includes both UK and foreign companies, must report their global greenhouse gas emissions within their annual financial report.

Reduce obsolescence risk
The Energy Act 2011’s Minimum Energy Performance Standards (MEPS) for lettings means that there is an increasing focus on the link between energy performance and value. Although the exact details are yet to be decided, it is anticipated that owners of buildings with Energy Performance Certificates rated F and G will be unable to let them after April 2018.

Data suggests that approximately a fifth of the UK’s commercial buildings will become unlettable and effectively obsolete unless owners take active steps to improve their energy efficiency. One such way to prevent this from happening is for owners to work closely with occupiers – a process which can be made much easier through the incorporation of green clauses.

A green future?
It is widely accepted that the use of green clauses will become standard market practice. Not only do they improve the sustainability credentials of commercial premises but they provide real benefits to occupiers in the form of reduced operational costs and legal compliance. For owners, buildings are more marketable with lower running costs and thus, more valuable.

Furthermore green clauses assist all parties to fulfil their corporate social responsibilities, while those that do not embrace such practices are likely to come under increased reputational pressures.

Posted by The Editor (wantspacegotspace) on 5th August 2013 (updated 19/08/2013)

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