Commercial Real Estate Solicitor, Tanya Auld, explores the value of embedding sustainability into landlord and tenant relationships for a greener tomorrow.
What Is a Green Lease?
A green lease is a legal agreement that includes sustainability clauses, enabling landlords and tenants to collaborate on reducing a building’s environmental and social impacts. The goal is to foster a partnership aimed at enhancing a property’s environmental performance.
Traditional leases overlook critical factors such as energy efficiency, water usage, and waste management. In contrast, green leases actively promote collaboration between the parties to reduce resource use and lower emissions.
Why Green Leases Matter
The United Kingdom is home to some of the oldest housing and building stock in the world, with the median Energy Performance (EPC) rating in England and Wales currently at a D.
If the UK is to meet its net zero commitments, then property owners need to increase the sustainability of their current assets.
Green leases establish clear expectations for sustainability, addressing areas such as renewable energy use and the monitoring and sharing of energy consumption data.
Such leases are likely to include provisions for:
- Minimum energy performance standards;
- Sustainable fit-outs and renovations;
- Recycling and waste management protocols;
- Data sharing for energy and water use; and
- Obligations to maintain energy-efficient equipment.
The level of sustainability provisions can be tailored to suit the building’s requirements and the parties’ respective appetites for sustainability and property improvements.
Minimum Energy Efficiency Standards (MEES)
Under current legislation, a landlord cannot grant a new lease, extend or renew a lease, or continue to let the property if it has a substandard EPC rating (EPC rating of F or G) without risking legal penalties for the landlord.
Proposed changes aim to gradually increase the minimum EPC standard, requiring buildings to meet a C rating by 2028, and a B rating by 2030 however the position is unclear. The government indicated it would publish a response to the 2021 consultation on non-domestic MEES in early 2025, which should provide some more clarity. Non-compliance may result in local authorities issuing MEES notices and financial penalties. Greening a lease can help landlords ensure compliance with these regulations, supporting the UK’s sustainability goals.
Benefits of Green Leases
Not only do green leases help contribute to a sustainable environment, but they provide great benefits to both landlords and tenants.
For landlords:
- Mitigate costs, such as rising insurance premiums.
- Protect or enhance the capital asset value.
- Attract higher rents or maintain rental values as the demand for sustainable buildings grows.
- Appeal to tenants focused on sustainability within their business model.
- Encourage a beneficial landlord and tenant relationship.
For tenants:
- Reduce business expenses, including utility and (in some cases) property management.
- Enhance employee wellbeing through eco-friendly workpaces.
- Align with corporate sustainability commitments, such as BCorp standards or ESG disclosure.
As the property sector continues to adapt to growing environmental responsibilities, green leases offer a practical and forward-thinking solution. By enhancing collaboration between landlords and tenants, these agreements can play a vital role in achieving long-term sustainability goals.
If you are considering how to integrate greener practices into your property portfolio or lease agreements, now is the time to act.
For legal advice on implementing green leases, contact Coole Bevis’s specialist Commercial Real Estate team today.
