30 April 2021

Green Lease / Sustainability Playbook - Quick Guide

Landlord and tenant obligations as to sustainability can take a number of different forms. In this briefing we set out an overview of the documents you may come across and when they are most likely to be used.

Head of words template wording

What does it do?

Gives clarity at the pre-contract stage that a green lease/sustainability commitment is agreed in principle between the parties. Offers an early focal point for discussion around what that commitment is going to look like.

Who is it for?

New tenants.

Green lease clauses

What does it do?

Provides enforceable contractual commitments to ensure that the premises are occupied and serviced in a manner which fosters sustainability. Clauses can be graduated from a less stringent “light green” commitment to more ambitious “dark green” obligations, depending on the circumstances.

Who is it for?

New tenants. Existing tenants seeking renewal (subject to being a “reasonable modernisation” any 1954 Act protected renewal).

Memorandum of understanding

What does it do?

A non-binding document which sets out a statement of intent between the parties, providing a clear framework to operate within. This will often be based on the model form MOU drafted by the Better Buildings Partnership as part of their Green Lease toolkit. Particular attention will be required to the Appendix where best practice recommendations are set out, which the parties agree to consider and, where appropriate, implement.

Who is it for?

Both new and existing tenants who are prepared to engage with the concept of working together with their landlord to reduce the environmental impact of their premises but are not prepared to enter into contractually binding commitments.

Data sharing letter of consent

What does it do?

Typically provides that the tenant will collect and share environmental performance data for the premises and/or allows the landlord to collect that data directly itself. May include optionality as to who is to undertake (and bear the cost) of the installation of any additional metering or other smart technology required to collect such data. Arrangement will usually be terminable on notice.

Who is it for?

All tenants who are only prepared to agree to data collection and the installation of metering for that purpose.

Tips for maximising engagement

Be Collaborative

Identify which tenants/properties are going to be the “easier wins” and start with them. Does the tenant have their own ESG strategy which you can refer to for discussion purposes? If dealing with an existing tenant, is a lease event due at which you can initiate a discussion?

Strategise

Consider your data collection/sharing strategy – are you happy to rely on data collected and shared by the tenant or would you prefer to control the whole collection process yourself? On multi-let properties, it may be administratively easier to try and adopt the same approach for all lettings.

Be Clear on the Mutual Benefits

Have an open dialogue with your tenants from the start – we recommend ensuring you are clear from the outset as to the parameters of your ESG strategy and its potential benefits for them - both in terms of direct cost reduction and the creation of cultural value.

Adopt a Systemic Approach

Agreeing the general principle early on will cut down on negotiation of the wording at a later stage in the transaction. You may want to consider your internal policies in respect of signing off any proposed amendments to your standard sustainability clauses. Are you adopting a grading system for how “green” your leases are?

Future-Proof

Keep ESG under review – schedule regular catch-ups with your professional advisors to ensure that the strategy and drafting remains fit for purpose. Make sure you stay well-informed of developments within the market to help you anticipate future areas of focus.

A PDF copy of the article above will be available to download here.

Victoria Towers is a Partner, Miri Stickland is a Knowledge Development Lawyer and Edward Glass is a Senior Associate. All authors sit in our Commercial Real Estate team.


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