26th April 2024 ❘ Legal News and Commentary
Green leases
Due to the increase in the Minimum Energy Efficiency Standards (MEES) and an overall push toward renewable energy sources and environmentally friendly buildings, “green leases” have emerged as an option for Landlords and Tenants alike. In many cases, we are seeing national and international companies require green leases for their new acquisitions.
What is a green lease?
It’s a lease that includes environmental obligations, often drafted to encourage both parties to co-operate in reducing their environmental impact and improving the sustainability of the building.
Why would I want one?
They can be used to improve the energy efficiency of a building or impose an obligation to preserve the current standard. Our article on MEES summarises the current standards required and the proposed future changes. These changes are only the first step in the tightening of the regulations and are likely to focus on increasing the environmental responsibility of the parties.
While green leases typically focus on the energy efficiency rating of the building, they can include a range of environmentally friendly obligations that do not centre around the EPC rating.
Due to their co-operative nature, green leases can be beneficial to both parties. Companies often adopt them for positive corporate reporting or to comply with their own environmental, social and governance policies and objectives. However, they can also help to future proof the property, reduce utility bills, and entice new tenants.
The strength of the commitments within a green lease can range, leading to green leases clauses being referred to as “light green” and “dark green” clauses. A light green clause may be limited in scope, whereas a dark green clause may require substantial commitment from parties and be drafted broadly.
As with most leases, green leases are typically negotiated at the Heads of Terms stage. However, it is important for parties to remember that Heads of Terms are not legally binding, and a green lease can be negotiated at various stages of the transaction.
If you have any questions regarding the impact of any current leases, or you would like to have your leases incorporate green lease clauses moving forward, please get in touch and we’ll be happy to help.