Going green

I’ve met with commercial clients over the last year or so who are genuinely, often inspirationally, committed to changing the world. Not through their latest product developments, or their branch-out corporate responsibility initiatives, but through bricks and mortar. 

‘Green leases’ have been around for a while, and it’s tempting to wonder if they will ever gain traction. Earlier incarnations never really caught on. Clients may now be more concerned with energy costs but current initiatives are not enough when, according to the UK Green Building Council, the built environment contributes a massive 40% of the UK’s total greenhouse gas emissions. 

Yet, the UK government has set a national legislative target of a 78% reduction in greenhouse gases by 2035 and a target of net zero by 2050. And, despite the High Court’s ruling last July that the Net Zero Strategy was unlawful for its failure to produce the detailed policy required by the Climate Change Act 2008, the fact remains that the world is waking up to the reality of climate change. While actual, game changing regulation is still thin on the ground, it’s up to the market to do something about it. 

Besides, for developers or investors, green leases and net zero goals are not just bread and butter; environmental, social, and governance (ESG) concerns are bedding in from a capital allocation perspective. It’s now less about a green premium on valuation, and more about the risk of a brown discount. 

How can property lawyers help? Once you have a handle on the client’s drivers and ambitions, there are plenty of (free to use) tools out there assist with drafting for ESG goals. The Better Buildings Partnership’s Green Lease Toolkit has been around since 2013 and will be updated this year. Estate owners such as NHS England publish their own suites of green provisions to borrow from, and the latest Model Commercial Lease suite has a useful sustainability schedule. From the Law Society, The Chancery Lane Project publishes a raft of contractual clauses for use across many legal departments (real estate included). 

There’s still no such thing as a market standard green lease, but while most of us have been distracted by anti-money laundering requirements or leasehold reform or even the registration of beneficial interests, drafting ideas have been quietly coalescing. It’s relatively straightforward to cater for EPC and MEES, but clients focused on attracting and retaining the best talent and tenants want to evidence wider sustainability and social impact credentials. They might design developments for inclusivity and community, mandate recycling targets or even tie building service provision to local suppliers. There will be tensions in service charge inclusions but ‘win-wins’ when operational efficiency drives down energy bills. 

Many of the ESG ideas are asking a lot from the traditional leasing agreement. They mean understanding a property’s impact beyond its immediate footprint. But why stop at the front door? The world is your (green) oyster.