New and improved? Taking a look at the updated Green Lease Toolkit

The Better Buildings Partnership (BBP), a UK industry body of leading property owners, has launched an updated version of its Green Lease Toolkit, a collection of green lease provisions and guidance aimed at improving the sustainability of commercial buildings.

In this article, we consider how green leases have developed, the key points to note regarding the updated Green Lease Toolkit and how it might impact the market going forwards.

Development of Green Leases

Despite the name, green leases are more of a concept than a standard form of document. They are provisions contained either within a lease or in a supplementary document which provide "for the management and improvement of the environmental (and social) performance of a building by both owner and occupier(s)”. There is no legal requirement for "green leases" to be used and the BBP's toolkit has no legal or regulatory status.

In the 15 years since the BBP published its first green lease toolkit, the market has experienced an increase in the number of green provisions in agreements for lease (AFLs) and leases. Whilst the BBP's recommendations have not been fully embraced as a single market norm, a spectrum of green provisions has developed in the market — ranging from a duty to co-operate (but not necessarily agree) to strict legal obligations. We previously blogged on the green provisions we are seeing in AFLs and leases of new builds, and the implications of green provisions in terms of enforcement.

Most landlords now aim to include green provisions in their letting documents for new builds to help them:

• meet sustainability targets.
• achieve a competitive advantage when it comes to attracting new tenants who are driven by their own corporate values and statements around ESG.
• comply with the current, and proposed future, regulatory targets under the Minimum Energy Efficiency Standards (MEES).
• enhance their reputation in the market.
• provide data for any ESG disclosure requirements.

The updated Green Lease Toolkit

Given the movements in the market, the development of new technologies and that the previous toolkit did not take account of the MEES Regulations, the BBP has published its updated Green Lease Toolkit which it has developed not only for lawyers, but also for investors, occupiers, managing agents and letting agents. The updated toolkit aims to foster collaboration at all stages of the leasing process and to encourage positive and open dialogue between the parties involved.

The updated toolkit now includes:

• Heads of terms – guidance and template wording for use in heads of terms.
• Green lease clauses – for the majority, there is a choice of light, medium or dark green drafting.
• Advice on owner and occupier engagement – to foster positive relationships and enable an alignment on sustainability goals.
• Green Lease Essentials – a checklist which outlines 10 areas which the BBP would expect to see covered as a minimum in a lease for it to be considered a "green lease".

The updated Green Lease clauses

The updated green lease clauses cover almost 20 areas, including ones not contained in the previous toolkit, such as clauses covering social impact, sustainable use and Smart Buildings. The green lease clauses are designed to be integrated into standard leases (including the model commercial lease) and, despite being focused on multi-let offices, can be adapted to be used across a wide range of asset types.

The green lease clauses are now classified as "light, "medium" or "dark" and reflect the extent of the obligations placed on the occupier and owner. The idea is that a lighter touch approach may be used where the appetite for sustainability is weaker, which may be due to the age of the building, or because neither party wants to commit to potentially costly obligations.

Examples of the updated green clauses include:

• Co-operation clauses to document the parties shared aim to increase environmental performance and social impact.
• Clauses introducing a Building Management Group to deal with green issues in the building.
• An introduction of "responsible" lease provisions given the increased demand for leases to address social issues. Examples include working with local charities, offering apprenticeships to local residents and engaging in local supply chains and businesses.
• Provisions to extend the data sharing obligations currently included in most institutional leases.
• The installation of metering and implementing a shared cost option given both the landlord and tenant will benefit from cost savings.
• An obligation on both the landlord and tenant to minimise and salvage as much waste as it can.
• An obligation on both the landlord and tenant to source all or some of its energy from renewable energy resources.
• Protection of environmental certifications.

What next?

In the short term, the updated Green Lease Toolkit is unlikely to develop into a benchmark for investors and valuers assessing a property's sustainability credentials. However, as with the previous toolkit, it is likely to help shape and move the spectrum of green provisions that are commonly seen in the market.

Whilst the updated Green Lease Toolkit arguably focuses on new leases, it is important to consider existing leases. We expect landlords will want to review their leases and decide which of the provisions they may wish to try to include on any renewal. The government is also expected to consider the extent to which the Landlord and Tenant Act 1954 (1954 Act) should provide a mechanism for introducing green provisions in statutory lease renewals and we recently blogged on how the 1954 Act must adapt to allow appropriate clauses to be inserted into renewal leases so that ESG initiatives are not undermined.

Green leases are changing the traditional relationship between landlords and tenants as the parties now frequently assume a joint objective to optimise the energy efficiency of the building and reduce environmental impact. Collaboration between the parties is critically important to the success of a green lease, probably more so than the existence of strict legal obligations, and the launch of the updated Green Lease Toolkit will help drive this by encouraging dialogue and collaboration between the parties at all stages of the leasing process.