‘Green lease’ toolkit updated for UK commercial property

Siobhan Cross of Pinsent Masons was commenting after the Better Building Partnership (BBP) published its updated green lease toolkit earlier this week. The toolkit was last updated in 2013 but is now designed to be a ‘live’ document that will be updated periodically to keep pace with the increasing sustainability agenda.

Included in the toolkit are draft green lease clauses and broad statements of intent setting out the aims of each clause. Cross, who was part of the legal drafting group that developed the updated toolkit, said that this approach “gives parties flexibility in how they draft to achieve those aims and is useful where owners or occupiers may be looking to use the toolkit in leases outside the UK”.

The toolkit also includes what the BBP considers to be 10 “green lease essentials” for a commercial property lease to credibly be called a green lease. While the BBP is not a standard setting body, the purpose of the essentials is to encourage the industry to move beyond the most basic green lease provisions, increase ambition and collaboration between owners and occupiers, and for the essentials to become an accepted industry norm for the “greenness” of leases.

While the updated toolkit builds on what was contained in the 2013 toolkit, it also introduces new clauses which shift the toolkit from being one that was mainly designed to protect the existing levels of the environmental performance of let buildings to one that encourages legal commitments to be entered into to improve aspects of the environmental performance of such buildings.

Cross said: “With the UK Climate Change Committee having made it clear in their June 2023 progress report that, outside the energy sector, annual rates of reduction in greenhouse gas emissions needed to quadruple each year to meet the UK’s 2030 Paris Agreement target, this shift is important.”

The new clauses cover the treatment of waste generated by the owner and occupier, and the use of sustainable materials in works by either party, in recognition of the increased importance of embodied carbon and related circular economy principles.

There is also a new clause related to sustainable use by both the landlord and tenant which seeks to drive behavioural change in the use of energy and water and the proper use of building systems to ensure optimisation of the environmental performance of the building. Earlier this month, the UK Green Building Council published its report on the case for retrofitting office buildings, which found that optimisation alone on average resulted in a 26% reduction in the operational energy use intensity of offices.

Renewably generated electricity procurement is covered in another new clause, a change that Cross said moves the toolkit beyond focusing merely on energy efficiency to, for the first time, expressly looking at the decarbonisation of energy sources in buildings.

The toolkit also, for the first time, contains drafting concerning social impact, a concept that Cross expects be developed in subsequent versions.

The toolkit contains extensive drafting of lease clauses covering the topic areas of the toolkit with narrative introductions to each clause and drafting notes. To show how the clauses would fit within a typical commercial lease, a version of the widely used Model Commercial Lease precedents has been used as the base document. Separate versions of the drafting that can be used in Scotland and Northern Ireland are included in the toolkit.

Lucy Edwards of Pinsent Masons, who was also part of the legal drafting group, said: “Most of the clauses contain drafting for various levels of ambition so that the least well-resourced parties or parties starting their sustainability journey will find entry level clauses, whilst those further along that road should find more stretching drafting matching their level of ambition. Some clauses, including on data sharing and metering, however, have only one option. This reflects how fundamental the adoption of that drafting is to operating a truly green lease.”

Central to the toolkit is the notion of improving “environmental performance”. The term has been redefined in the updated toolkit to extend its application beyond energy and water use, waste generation and greenhouse gas emissions, to biodiversity and resilience too.

One area the toolkit does not address with draft clauses is the issue of the costs of any works by a landlord to improve the environmental performance of the demised premises or the building. However, the toolkit supports the principle that tenants should contribute to the cost of those improvements to the extent that they result in savings for the tenant – and cites examples of drafting in the US and Australia which seeks to implement this principle.

The toolkit does include draft heads of terms – high-level, upfront wording that landlords and tenants can agree to set the direction for further negotiation on the main terms of their lease agreement. The BBP said: “The heads of terms stage of a negotiation is a key moment to communicate the importance and ambition of green provisions in the lease.”

The updated toolkit is the result of work over 18 months of collaboration between members of the steering group for the project, which included investor, owner and occupier representatives, and between members of the legal drafting group drawn from Pinsent Masons and four other law firms and The Chancery Lane Project.

Cross said: “With tenants’ and landlords’ interests increasingly aligned when it comes to reducing carbon emissions, and with this decade being critical for significant emissions reductions, this update is timely. It is balanced and will be an important tool as tenants and landlords work together to shift the dial on the environmental performance of leased buildings.”