good practise guide green lease agreements

7/27/2019 Good Practise Guide Green Lease Agreements

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GreeninGthe CommerCial ProPerty SeCtor:a GuidefordeveloPinGandimPlementinGbeSt

PraCtiCethrouGhthe uK leaSinGProCeSS.Good PraCtiCe Guide

July 2009

wsa

CRiBE Centre for Research in the Built Environment


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CRiBECentre for Research in the Built Environmentwsa

Centre for Research in the Built Environment

The Centre for Research in the Built Environment (CRiBE) is located

within the Welsh School of Architecture, Cardiff University. CRiBE has

pioneered research and established an international reputation in the elds

of environmental design advice, energy efciency of buildings and urban

sustainable development.

CRiBE comprises an established multi-disciplinary group of environmental

design specialists including architects, engineers, planners and social and

environmental scientists. This brings a uniquely holistic inter-disciplinary

approach to effective and sustainable design, construction and operation of

the built environment.

CRiBE plays a major role in informing the future of building design, and also

in dening and developing the whole area of urban sustainability.

Expertise Building environmental design advice

Prediction and measurement of building performance

Urban environmental planning

Waste minimisation and management

Renewable energy

Strategic estate management

Training in environmental design management

BREEAM for Ofces, Schools and EcoHomes assessments

FacilitiesEnvironmental laborator with a wind tunnel, articial sky and heliodon

provides a unique facility for the simulation of wind, sun and daylight effects

which can be incorporated into environmental scale modelling.

Computational modelling softare for application to building and

urban scale design and management. Includes environmental design software

(HTB2), Ecotect and EEP, an energy and environmental prediction tool for

urban scale modelling.

Field measurement equipment including ventilation and tracer gas

measurement instrumentation, infrared thermography and energy andenvironmental logging equipment.

Technical librar providing an outstanding resource of architectural,

planning and construction information.

Industrial ApplicationsCommercial applications for CRiBEs expertise and facilities are dispersed

across all aspects of the built environment, and include the following sectors:

Architects and engineering consultants

Building contractors

Building component manufacturers

Developers

Estate managers

Fuel industry Housing managers

Local authorities

Building operators

Industrial ClientsCRiBE has an established record of industrial collaboration, serving both

national and international organisations, including:

Baglan Energy Park

Cardiff City Council

DETR

Hanover Trade Fair

Millennium Dome

National Botanic Garden for Wales

National Assembly for Wales Newcastle City Council, Australia

United Development Company, Qatar

Ove Arup and Partners

Wales Millennium Centre


Welsh School ofArchitecture

Bute Building, King Edward VII Avenue

Cardiff, CF10 3NB

Tel: 02920 875959

Fax: 02920 874623

Commercial Manager: Huw Jenkins

Email: [email protected]

URL: http://www.cf.ac.uk/archi/cribe.php


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Project team & acknoledgements

This guidance document augments recommendationsprovided in Incorporating Environmental Best Practiceinto Commercial Tenant Lease Agreements publishedby CRiBE in 2007 (Langley et al) [1] [2]. The workundertaken to develop this new guidance document hasbeen funded by the Welsh Assembly Government andkindly supported and managed in partnership with theBritish Council for Ofces, Eversheds and RICS. CRiBEis grateful to the following members of the team fortheir kind support and advice.

Chris MundaHead of Funding SolutionsWelsh Assembly Government

Rebbeca Johnson

Senior Investment & Development ManagerWelsh Assembly Government

Rhian Davies

Investment & Development SurveyorWelsh Assembly Government

Ian Selb / Jenn Mac Donnell

Director of ResearchBritish Council for Ofces

Paul Bagust

Associate DirectorRICS

Nefdd Jones

PartnerEversheds

Further acknoledgements

CRiBE would also like to thank the following organisationsand individuals for their support and feedback duringproduction of this Good Practice Guide.

Professor Robert Lee

Co Director BRASSCardiff Law School, Cardiff University

Dave Farebrother

Environment ManagerLand Securities

Karen Halse

Associate

DLA Piper UK LLP

Rebbeca Ran

(formerly) SolicitorDLA Piper UK LLP

Published b

The Welsh School of Architecture

Greening the Commercial Property Sector: A guide fordeveloping and implementing best practice through theUK leasing structure

Angela Langle and Lara HopkinsonCentre for Research in the Built Environment

ISBN: 978-1-899895-42-7

Publication funded b

Welsh Assembly Government

GreeninGthe CommerCial ProPerty SeCtor: a GuidefordeveloPinGandimPlementinGbeStPraCtiCethrouGhthe uK leaSinGProCeSS.

Good PraCtiCe Guide


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TABLE OF CONTENTS

Executive Summar 1

Foreord 2

1.0 Introduction 3

1.1 What is a green lease? 31.2 Green Leases in the UK 41.3 Green Leases Overseas 4

2.0 The Existing UK Lease Structure 7

2.1 Overview 72.2 Identied barriers in the leasing structure. 7

3.0 Drivers for change 9

3.1 Policy 93.1.1 Overview of UK Policy 93.1.2 Policy in Wales 9

3.2 Statutory Requirements 93.2.1 The Carbon Reduction Commitment 93.2.2 Energy Performance Certicates (EPCs) 93.2.3 Sustainability 10

4.0 RECOMMENDED ROUTES FOR CHANGE 11

4.1 The need for exibility 114.2 Pre-Contract issues to consider 11

4.2.1 The Landlords perspective 114.2.2 The tenants perspective 11

4.3 Identify opportunities, priorities and potential responsibilities 114.4 Memorandum of Understanding (MoU) 124.5 Management Agreements 13

4.6 Developing Heads of Terms 144.7 Green leases 14

4.7.1 Light green and dark green leases 144.7.2 Model lease clauses 15

5.0 Generic Reards & benets 18

5.1 As a commercial property investor 185.2 As an occupier 185.3 As a landlord 19

6.0 OTHER RELEVANT SOURCES OF INFORMATION 20

6.1 The Landlords Energy Statement (LES-TER) and the Tenants Energy Review (TER) 206.2 IPD Environment Code 20

6.3 Energy Performance Certicates (EPCs) 206.4 Commercial Leases 206.5 Environmental Management Plans 206.6 The Service Charge Code 20

APPENDIX A: Case studies from trial 22

APPENDIX B: Oner/Landlord Preliminar Environmental Assessment of the Building 29

APPENDIX C: Developing a Tpical Corporate Energ and Environmental Polic 31


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1

EXECUTIVE SUMMARy

Commercial buildings are signicant consumersof energy and can have a signicant impact on theenvironment if not managed in an efcient way.More stringent legislation in the UK combinedwith the introduction of Government schemes

such as Carbon Reduction Commitment andEnergy Performance Certication, is increasingthe pressure on both occupiers and landlords toaddress these issues.

Incorporating good environmental managementat lease negotiation stages can ensure a fair yetsustainable approach is met for both parties,providing bottom-line business benets whilstmutually mitigating environmental impact. In2007, Incorporating Environmental Best Practiceinto Commercial Tenant Lease Agreements,

(Parts 1 & 2) [1] [2] was published based on 7years pioneering research undertaken in theCentre for Research in the Built Environmentby Langley et al [3]. Working with commerciallandlords and tenants alongside project partnersEversheds, the Environment Agency Wales, RICSFoundation and King Sturge, recommendationswere developed and summarised in thepublication. Consultations and trials undertakenthroughout 2007 and 2008 in Newport southWales identied that the method provided aninnovative approach for commercial landlords

and tenants but due to the complexity of varyingcommercial structures currently within the UK,further specic guidance was required regardingmethods to implement the recommendations.This document provides further advice that islinked to the 2007 publication but also buildsupon this by referring to other work underwayin the UK. Furthermore, studies on similarwork underway in Australia, USA, Canada andNew Zealand have been identied and alsosummarised in this guide. Whilst some lessonscan be learnt from the methods adoptedoverseas, it is clear that the complexity of the

UK commercial market requires more exibilityto encompass a range of commercial structuresand building types.

Before embarking on shared obligations betweenlandlord and tenant however, landlords shouldbe aware of potential opportunities to improveexisting environmental performance within theirbuilding. Once identied, responsibilities andobligations for addressing these issues can thenbe discussed and agreed with tenants. Advice istherefore offered in this guidance document to

assist with the identication of opportunities andmethods that can be employed to address them.


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FOREwORD

Commercial property is estimated to contribute around a fth of the countryscarbon emissions and it is estimated that by 2050, approximately 60% will bearising within our existing building stock.[4]

There are numerous reasons why commercial landlords and tenants should consider

their responsibilities to improve their environmental performance, particularlyin relation to energy consumption. Some of these reasons are provided below,and whilst the list is not exhaustive, they provide bottom-line business reasons,that aim to reduce carbon emissions from the built environment and improveenvironmental performance.

A second Energy Performance of Buildings Directive (EPBD) is beingproposed under consultation and will extend the scope of the currentDirective. It aims to further promote more cost-effective improvementsin the energy performance of buildings and will also require regulation ofinformation-based instruments. It is anticipated that the amended versionwill be adopted in 2010 and whilst the objectives and main principles ofthe current EPBD remain the same, this second draft will encompass new

provisions to include both new and large existing buildings that undergomajor renovation or refurbishment.

The introduction of new policies and legislation will inevitably follow inthe UK and will drive owners of commercial buildings and tenants toadopt scal and economic measures to reduce carbon emissions and tofurther improve environmental performance. To ensure compliance byboth parties will require more stringent management methods includingmetering and monitoring which can be incorporated and managed throughthe leasing structure. [5]

The EPBD led to the requirement for Energy Performance Certicates(EPCs). These certicates are based on the energy efciency of a building

and are required when buildings are sold, let or renovated. EPCs give theequivalent of a fridge rating for buildings to indicate their energy efciencyand level of carbon emissions. Ratings are based on the performancepotential of the building and its services. The aim is to offer information topossible tenants or purchasers of the building so that they can factor energyperformance into their decision making about occupation or investment.On sale or letting, a free copy of the EPC should be provided along withother written information. This might be a single EPC, where the wholebuilding is being let, but might have to be tailored where the building isbeing part let especially where that part of the building has separate heating,lighting or ventilation systems.

Carbon Reduction Commitment (CRC), which was announced in the

2007 Energy White Paper, is set to come into force in 2010. The CRCis a mandatory emissions trading scheme, targeting emissions fromaround 5,000 large organisations including supermarket chains, hotelchains, ofce-based corporations, government departments and largelocal authorities. It is planned to cover all organisations whose electricityconsumption through half hourly meters is greater than 6,000MWh/yr equivalent to an annual electricity bill of more than 500,000. Note thatthis is an equivalent; electricity, gas, fuel and oil (other than transportfuels) are all covered. As with any trading scheme the aim is that thoseachieving energy savings will have excess allowances to sell to those whoseoperations are struggling to remain within their allowances.

This Good Practice Guide aims to encourage owners and occupiers to consider

the adoption of a more sustainable approach, providing shared benets, throughthe commercial lease structure. Adoption of a more formalised method for sharingobligations will facilitate communication routes for data collation and as such aidthe environmental improvement of the building and corporate image.


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When the landlord of a building and a prospective tenantembark on the development of a commercial leaseagreement, certain clauses can be included, withdrawnor amended by agreement of both parties. Adoption ofbest environmental practice into the commercial leaseagreement can provide a number of business benetswhilst assisting parties to meet their obligations forreducing resource consumption and improving theenvironmental performance and energy efciency of thebuilding. This could then potentially

Provide bottom-line business benets for bothparties

Improve corporate image Encompass aspects of relevant environmental

legislation and UK Building Regulations

However, variations in leasing arrangements withinthe UK and differing business priorities may provedifcult for encompassing green clauses into leasecontracts across the board. Guidance provided in thisdocument therefore covers a variety of options that canbe discussed and agreed between landlord and tenant

according to business priorities and starting point.

This guide has been developed following trialsundertaken in Newport in 2007 using the IncorporatingEnvironmental Best Practice into Commercial TenantLease Agreements publications [1] [2]. Recommendationsprovided build upon issues and feedback received duringthe trials and it also encompasses work undertaken byothers in the UK since these trials and work undertakenoutside of the UK. It is therefore recommended thatthis document is read in conjunction with IncorporatingEnvironmental Best Practice into Commercial TenantLease Agreements (Parts 1 & 2)

1.1 what is a green lease?

A green lease can be considered a formal, sustainablemethod for commercial landlords and tenants to adoptmutual obligations aimed at improving environmentalperformance and energy efciency whilst minimisingadverse impacts on the environment. Obligations within agreen lease can cover aspects of the supply, maintenanceand operation of a building as well as considering softeraspects such as social and ethical issues [6]

Whilst adoption of green leases in the commercialsector is a relatively new concept, substantial work isalready underway within the UK to help landlords andtenants adopt an appropriate method that can provide

mutual benets. Whatever method is adopted however,it must prove to be rewarding to both parties and offerexibility to allow progressive implementation. It mustalso acknowledge any existing best practice schemesin operation and encompass opportunities to improvefurther without compromising benecial use of thebuilding by the occupant.

Figure 1 below illustrates the current traditional leasingprocess whereby both landlord and tenant have individualobjectives to achieve whilst meeting the obligations

of the existing lease agreement. In this diagram bothlandlord and tenant have dened Corporate SocialResponsibility objectives (ie that is their own denedbusiness contributions towards sustainability). However ina rented commercial building, CSR objectives set by thelandlord and tenant may have a different focus and businesspriorities as such could counteract one anothers efforts.

Figure1:Traditionallease

Figure 2 below illustrates how lease obligations becomea two-way process between landlord and tenant withshared costs and Corporate Social Responsibilitybecome streamlined to provide a collaborativeapproach for the building.

Figure2:Implicationsofagreenlease

Source:M.Barlow,BurgesSalmon(2007)

Greening the Commercial Property Sector:A guide for developing and implementing best practice throughthe UK leasing process.

Good Practice Guide

1.0 Introduction

Green lease

Rent

Lease Obligations

Landlord Tenant

Shared building-specic

CSR objectives

Shared Cost

Shared Environmental/

Ethical/Social Objectives

Traditional lease

Landlords

CSR

objectives

Tenants

CSR

objectives

Rent

Lease Obligations

Service Charge

Service Obligations

Quiet Enjoyment

Landlord Tenant


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Greening the Commercial Property Sector

1.2 Green Leases in theUK

Academic research on thetopic of green leases within the

commercial sector commenced at Cardiff University in2000. [3] . This work, which is summarised in greaterdetail in Incorporating Environmental Best practiceinto Commercial Tenant Lease Agreements Part 2 [2]identied that the commercial lease agreement as asystemic barrier to environmental improvements inthe commercial sector. Working on a practical levelwith commercial landlords, tenants and propertymanagement agents, a series of recommendationsand model lease clauses were published in the formof a Good Practice Guide, which was trialled in southWales by CRiBE over a two year period. Furtherdetails regarding the trials are provided in Section 4.1

The Good Practice Guide Incorporating EnvironmentalBest Practice into Commercial Tenant LeaseAgreements, 2007 [1] was developed by CRiBEin partnership with Eversheds, the EnvironmentAgency Wales, RICS Foundation and King Sturge. Thedocument provides detailed practical based guidanceon environmental issues which could be discussed andincluded in the lease negotiation stage. Trials of theguidance document undertaken by CRiBE between2007 and 2008 with a number of public and privatesector landlords suggested that the complexity ofexisting commercial lease processes together with

existing commercial structures complicated theimplementation of a green lease. Furthermore, the lackof targets, clarity and meaningful measures mystiesthe concept further. As such, exible approacheswould need to be presented in guidance documentsand processes should be introduced that enableadoption of best practice whilst facilitating the meetingof mutual objectives.

Where appropriate, this document refers and buildson the recommendations provided in the 2007publications but it also draws on more recent workthis is being undertaken in other areas.

1.3 Green Leases Overseas

The introduction of green leases into the commercialsector has been ongoing for some time with theAustralian Government leading by example throughtheir green lease schedules. Other countries havealso identied and adopted methods for developinggreen leases.

AustraliaThe Australian Department of

the Environment and WaterResources together with theAustralian Government Sector

(AGS) rst developed green lease schedules in 2006.

The Australian green lease is a self contained genericdocument forming a legally enforceable managementframework [7] which has recently been expanded toprovide a voluntary approach for the private sectorand as such now offers a series of 8 Green LeaseSchedules which can be used with both gross andnet leases. A net lease is used when the occupier isresponsible for all operational costs of the buildingincluding utilities, waste with the landlord being onlyresponsible for the roof and walls. In contrast, in thecontext of a gross lease, the landlord charges formaintenance which can also include but not always,utilities and third party contractors.

The schedules provide legally based objectives that focuson energy efciency in accordance with the AustralianBuilding Greenhouse Rating (ABGR) and they alsoprovide a tool to aid achievement of set Governmentaltargets. For all new buildings over 2000m2 with a

lease expected to last longer than a 2 year period,the Australian Energy Efciency in GovernmentsOperations (EEGO) policy strategy requires that theGreen Lease Schedule should be included to form partof the lease, where feasible. (source: http://www.lcca.co.uk/server.php?show=ConWebDoc.95)

Several buildings in Australia have been tenanted withgreen leases and recent studies have shown a minimumreturn on investment of 14% for green buildings withan increase of 10% on market value, as well as a 5-10%increase in rent. A web-site is available for the details

of the 60L building at http://www.60lgreenbuilding.com . Also details of the green lease objectivesfor 60L are available [8] at the following web-site.h t tp : / /bus inessout look . com.au / s i te /arch i ves /Green%20building%20-%20%20barriers%20and%20drivers.pdf

USAThe Building Owners andManagement Association (BOMA)[9] believe that Green Leasesshould be available to t existing

buildings and should not be reliant on the rating of a

building. BOMA also recommend that when developingleases, the following should be considered:

1. Building owner and tenant should establishnancial obligations for investments in energyefcient technologies. This should allow thebuilding owner to pass through energy efciencyimprovements as operating costs as long asthe improvements result in lower costs for thetenant.

2. Specify the standard to which the building isbeing operated. This could include LEED, Green

Globes or another building rating system. LEED(Leadership in Energy and Environmental Design)has been developed by the US Green BuildingCouncil which now is used within 50 States


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5

and over 30 countries. Buildings that have beencertied to LEED standards are more efcientthan standard buildings and provide healthierwork and living environments. Green Globes,based in the BREEAM system in Canada, is anon-line environmental assessment tool, andis used by large developers and managementcompanies. The tools encompass Design of NewBuildings/ signicant refurbishment; managementand operation of existing buildings; BuildingEmergency Management, Building Intelligence andt-out.

3. Outline the buildings waste management andrecycling together with obligations for segregation.

4. Any maintenance that the tenant undertakesshould be done in accordance to green buildingpractice. Contractors of the tenant should alsobe made to comply through contractor rules and

regulations.

5. Specifying janitorial/ cleaning services and thematerials used as well as times of servicesprovided.

6. At leases termination, tenants should beencouraged to recycle or re-use their equipment,xtures and ttings and furnishings.

The California Sustainability Alliance have developed aGreen Lease Toolkit [10] to assist landlords and tenants.The toolkit provides:

1. A model green policy statement.

2. Lease prole and options matrix to help the tenantidentify the green objectives most appropriate totheir building type.

3. A green lease provision database.

4. A document which helps tenants to assess differingproperties against a set of criteria which includes;a. A request for information on the building

including energy management and cost;b. Energy efciency requirements;

c. Water efciency requirements;d. Waste management policy ande. Alternative transport options

The Governors Green Government Council ofPennsylvania has a Model Green Ofce LeasingSpecication [11]; however, this is more closely relatedto the design of the building than its operation onceoccupied. The document contains specications for thefollowing items:

Design requirements

Mechanical system criteria Electrical system criteria Interior construction and nishes Landscaping

It has been identied that by greening 810m squarefoot of leased Class A & B ofce space the following

benets would be realised in one year:

45% of California ofce building waste would

be eliminated,

Consumption of water would be reduced by

36%,

Consumption of energy would be cut by 27%,

greenhouse gas emissions would drop by 25%.

Canada

The Real Property Association

in Canada REALPAC [12] have

dened the green lease as being

a legal document that encourages

signicant reduction in consumption by both owner

and occupier of both renewable and non-renewable

resources whilst establishing a more sustainable

operating regime for the building. Throughdeveloping a Green Ofce Lease based on the

existing National Standard Ofce Lease, a precedent

commercial ofce lease was established and adopted

by major landlord organisations. This lease can be

used in its current state by both landlord and tenant

in large and small organisations.[13] . The green lease

includes provisions relating to:

Environmentally preferable products

Water conservation measures

Energy efciency standards

Indoor air quality standards Ventilation requirements

Type of ofce equipment

HVAC specications

Lighting requirements

Allowable cooling, heating & humidity

Construction specs (core, shell & interior)

Tenant amenities (e.g., bike racks, showers)

The Public Works and Government Services Canada

has developed a green lease which includes:

Management of wastewater

Indoor air quality Recycling

Energy efcient lighting xtures

Green house gas reduction

The use of green leases in Canada has been introduced

primarily to minimise resource consumption,

particularly since North Americans are the highest

per capita users of fresh water in the world. Some

government tenants and as many as 500 companies

associated with Fortune have adopted green lease

principles and recent collateral benets identied

that landlords are reducing their indirect carbondioxide emissions because less current is being

drawn from the grid. Further information can be

found at http://car123.designersi.com/m_37.asp


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NewZealandThe New Zealand Ministry forthe Environment [14] is currentlyrestructuring the leasing processso that it includes the following:

The agreement for lease and the lease An environmentally sustainable design schedule An agreed as-built environmental rating for the

base building and t-out (e.g. Green Star NZ 4stars and above represent Best practice whilst5 star represents a building of New ZealandExcellence)

An obligation on the lessor to separately meter

the energy and water consumption of each lessee An established mechanism to appoint a

consultant to monitor consumption andsustainability outcomes

A fair and reasonable calculation formula forfailing to comply with the lease obligations

Specic obligations on both lessor and lessee

There is a tenant driven desire within New Zealand forany refurbishment undertaken on existing buildings orany new builds for them to have a green label. A keyreason identied for promoting a green building is thatin New Zealand it has greatly increased marketabilityto potential tenants.


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7

2.1 Overvie

This section provides information about how thecommercial lease process operates and whilstprocesses are familiar to property professionals, oftenenvironmental managers or facility managers withinorganisations do not have direct responsibility for orare not involved in leasing of premises but may be a keypoint of contact for implementing best practice withinthe management and operation of the building.

A lease is the method used by organisationsproviding them with the right to use assets. [15].The majority of the UK commercial rental stock iscovered by operating leases, since the lessor retainsthe risks and rewards associated with ownership.A 1996 report entitled Accounting for leases: a

new approach recommended the creation of newstandards to remove this distinction, thereforerequiring lessees to recognise rights and obligationsarising from lease contracts within their balancesheets. [16]. In a multi-let building, the landlord ismore involved with the running either directly orthrough a third party asset management organisationand re-coups the cost for operation through aservice charge. In a single-let building, which is lesscomplex, a Full Repair and Insurance (FRI) operateswhere the tenant is responsible for operational costs.Therefore in the UK, the type of lease will inuence

the way both landlord and tenant work together. Thisdocument therefore focuses on the multi-let leasearrangement as this provides the greater challengesfor environmental improvement.

Generically, the legal structure of a UK lease is veryexible. It is a document that has to reect the viewsof both parties entering into it, depending upontheir commercial structure, which then becomesthe acceptable lease. Whilst the UK lease structurecan accommodate change easily, the commercialstructure could form an inexible barrier to changesince the process is designed to protect the landlords

investment value.

Over the last decade, market pressures have forcedthe introduction of more exibility in the leasingsystem. The most problematic lease term identiedby occupiers is the lease length [17]. In general inthe UK, the trend has been towards the shorteningof standard market lease lengths [18]; over the past15 years, the standard lease length has changed from20-25 years down to 5-10 years [19]. This exibility isalso associated with a redistribution of risk betweenthe lessee and the lessor. Whilst the commercial

structure remains a barrier to change currently,adoption of low-cost or no cost environmentalbest practice becomes easier to incorporate withshorter lease lengths. There are many other benets

associated with the adoption of shorter lease lengthsthat can be realised for both parties, including:

Tenant attraction and retention Flexibility to refurbish and redevelop (both

parties) Ability to generate higher rents for occupiers

who value exibility Ease of exit from premises [19]

However, shorter lease lengths do not lend themselvesto larger capital expenditure for improved technologiesor facilities since neither party will achieve paybackduring the required timeframe.

2.2 Identied barriers in the leasingstructure.

Undeniably, the global recession is having a signicantimpact on the commercial property sector and as such,there are short term concerns which are currentlydisplacing the longer term considerations that greenleases seek to address. Consequently, awarenessof green leases is slow to develop. This problem ofawareness is exacerbated by the lack of commonlyaccepted metrics for judging the environmentalperformance of buildings in the UK. Even with EPCslling some of this gap, time is needed to build awarenessand they will need to be seen much more as a product

of consortia and co-operative behaviour on the part ofboth landlord and tenant.

At the moment, however, this is not always the case.Landlords may see themselves having to incur capitalexpenditure only to watch the tenant accrue benet interms of energy savings. The payback period for certainstructure investment to improve energy performancemay be longer than the term of the lease, making tenantsreluctant to fund capital expenditure e.g. through theservice charges. Time will be needed for a market todevelop in green leases and this will have to be drivenby a consciousness that over time energy and other

environmental costs will form a greater proportion ofbusiness overheads.

2.0 THE EXISTING UK LEASE STRUCTURE

Many people are not familiar with the

environmentalstandards/issuesandthereforewould

feelthattheydonotknowwhattheyaresigningup

to.Costwillalwaysbeanissue.Ifthedevelopments

canbeeconomicallyjustied,peoplewillbemuch

moreaccepting.DLAPiper

This may be particularly true when dealing not with newbut with existing buildings into which improvementsare being incorporated. There is no reason why thiscannot work well for both landlord and tenant but


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the negotiations might seem daunting, especially wherebuildings are particularly old or are in multiple occupation.

From a legal perspective the leasing structure is notconsidered a barrier but the commercial structure is.There is no reason why a green lease cannot be made towork but obligations on parties will often be mutual and

failure to meet standards may not best be dealt with asa breach. This partly explains why Australia has optedfor a model of schedules to the lease as the mechanismfor introducing the provisions. This can then allow forother enforcement mechanisms and dispute resolutionstructures to be incorporated as time passes andstandards change.


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9

3.1 Polic

3.1.1 Overvie of UK Polic

The UK Sustainable Development Strategy (Securingthe Future) sets out the ve key guiding principlesthat the Government wishes to encourage and worktowards. These include living within environmentallimits; ensuring a strong, healthy and just society;achieving a sustainable economy; using sound scienceresponsibly; and, promoting good governance. Thestrategy also sets out the priority areas for the UK,which includes climate change and energy [20]. The useof green lease methodologies will be able to directly

assist in meeting the aims set out in the strategy relatingto energy efciency.

The 2007 Energy White Paper (Meeting the EnergyChallenge) highlights the need to encourage more energysavings through the provision of improved information,incentives and regulation. Achieving this will in turn aidthe removal of barriers to the uptake of cost-effectiveenergy efciency measures. [21]. The Energy EfciencyAction Plan (2007) further adds that energy savings arenot generally considered core business activities andare not high on business agendas. Other barriers, such

as hidden costs, lack of motivation and split incentivesbetween landlord and tenant all are additional barriersto achievements.[22] Provision of clear guidance on howgreen lease methodologies can be mutually benecial,incentives for all parties can be realised.

3.1.2 Polic in wales

In Wales, the Government of Wales Act 2006 [23]highlights the Welsh Assembly Government commitmentto ensure sustainable development is a key considerationin the exercising of their functions. Several keycommitments have been set in the One Wales agenda,

further highlighting this commitment. These include:

Encouraging and stimulating enterprise andencouraging companies to grow and invest

Adoption of an all-Wales strategy to economicdevelopment

The development of a green jobs strategy Committing to targets on carbon neutrality of

public buildings.

The Welsh Assembly Government understands thatthey must be at the forefront in the campaign to reduce

climate change, and must be seen to be leading byexample. Sustainable development is further driven bya join-up Government with a focus on the long-termhorizons. [24]

In the recently developed Green Job for Walesstrategy [25], the Assembly further highlights howit intends to support the further development of agreener agenda, through the provision of a coordinatedand coherent infrastructure for businesses in Wales,including the provision of advice and support in orderto be more resource efcient and therefore moreable to cope with the impacts of resource scarcity andclimate change.

The green lease agenda (although new and not currentlyhighlighted in any policy documents) is considered asa key driver by the Welsh Assembly Government infurther driving sustainable development through

the built environment. [26] There is commitment toimplement the agenda within its own building stock,beginning at a light green level, but with the intentto show demonstrable progression towards darkergreen leases in the future.

3.2 Statutor Requirements

3.2.1 The Carbon Reduction Commitment

In the UK, the Carbon Reduction Commitment(CRC), which was announced in the 2007 Energy

White Paper, is set to come into force in 2010. Itwill apply to organisations within the public andprivate sector who are large consumers of energy.An organisation will need to have at least one meteron half-hourly readings with the supplier with aconsumption of more than 6,000 megawatt-hoursbetween 1st January 2008 and 31st December 2008to register. It is anticipated that as much as 1.2million tonnes of carbon will be saved each yearby the year 2020 [27] Organisations falling withinthe thresholds of the Commitment will be sent aregistration pack from the Environment Agency in2009 and it is proposed that by April 2011, selling

of carbon allowances will commence. Emissionsdata will be held in a league table. The scheme willrely initially on self certication of monitoring andreporting together with emissions data. This willhave to also be veried through an independentrisk-based audit process. Further information on theCarbon Reduction Commitment can also be found athttp://www.decc.gov.uk/en/content/cms/what_we_do/lc_uk/crc/crc.aspx

3.2.2 Energ Performance Certicates(EPCs)

The Energy Performance Building Directive (EPBD)led to the requirement for Energy PerformanceCerticates (EPCs). These certicates are based on

3.0 DRIVERS FOR CHANGE

Considering leases in a green light is being driven by a number of factors including European and domestic law, as wellas USA and Australia law and market practice. Some of the key drivers identied are presented in the following sections.


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the energy efficiency of a building and are requiredwhen buildings are sold, let or renovated. EPCs give theequivalent of a fridge rating for buildings to indicatetheir energy efficiency and level of carbon emissions.Ratings are based on the per formance potential of thebuilding and its services. This provides informationto possible tenants or purchasers of the building sothat they can factor in energy performance into theirdecision making about occupation or investment.On sale or letting, a free copy of the EPC should beprovided along with other written information. Thismight be a single EPC, where the whole building isbeing let, but might have to be tailored where thebuilding is being part let especially where that part ofthe building has separate heating, lighting or ventilationsystems. Implementation dates for the EPBD were asfollows:

a. for buildings over 10,000m2, when built, sold

or rented - 6 April 2008b. for buildings over 2,500m2, when built, sold or

rented - 1 July 2008c. all remaining buildings when built, sold or

rented - 1 October 2008

In rented commercial premises, the building owner isresponsible for obtaining an EPC and this will needcerticates for the whole of its portfolio. The EPC foreach building can be selective as to which tenants areincluded in a multi let building but it will not reect thetrue performance of the building and may be requestedby prospective tenants. Furthermore, the owner willneed to pay the fee for the certication process for eachdemised area included therefore it is more costeffectivefor the entire building to be considered. As such, therewill be an increased desire from the owner for efciencyand best practice to be employed within tenant rentedareas. Developing shared best practice obligations andagreements at negotiation stages will therefore help tominimise risk to both parties.

3.2.3 Sustainabilit

The UK Governments drive for sustainability to use less

water, heat, turn off lights etc and the need to addressthe regulation of a buildings operation, use, maintenanceand management with a view to minimising the harmfuleffects on the environment- is resulting in increasingweight being placed upon environmental considerations.


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4.1 The need for exibilit

Between 2007 and 2008, Part 1 of the Good PracticeGuide [1] was trialled with a number of public andprivate sector landlords and tenants based in Newportsouth Wales. The different scenarios and staring pointsidentied during the trials suggested that one route did

not suit all. Case studies developed from the work canbe found in Appendix A. Feedback from a questionnairesurvey undertaken as part of this work indicated thatthe recommendations provided within the Guidewere realistic and not controversial. However, furtherguidance would be required with respect to methodsfor adopting these recommendations.

Occupiers who value exibility within their lease(especially relating to lease terms) may be prepared topay more for rental where leases are shorter than thestandard norm [19]

4.2 Pre-Contract issues to consider

4.2.1 The Landlords perspective

Prior to negotiating a green lease with tenants, ownersshould be completely aware of the existing conditions

and environmental performance of the building togetherwith an understanding of the potential to

improve environmental and energy performance minimise risk to themselves and prospective

tenants minimise impact on the environment

Appendix B provides a brief checklist for ownersand landlords to undertake a preliminary assessmentof their building prior to engaging with tenants fordeveloping shared obligations. However, procurement

of external expertise to undertake a preliminaryassessment of the premises prior to letting will providea formalised audit with greater inuence on potentialclients at lease negotiation. By way of an information

pack, (refer to Section A 1.1, 1.2, 1.4 of IncorporatingEnvironmental Best Practice into CommercialTenant Lease Agreements [1] prospective tenantscan review the formal audit together with actual andplanned environmental management activities andimprovement schedules.

HammersonshavedevelopedaSustainabilityGuidefortheirtenants.Whilstthishasbeenpublishedfortheretailsector,

many of the principles contained within it can beeasily

appliedtoothersectors.Furtherinformationisavailableat

the following link: http://media.corporate-ir.net/media_les/irol/13/133289/pdfs/TenantsSustainabilityGuide.pdf

As mentioned in Incorporating Environmental BestPractice into Commercial Tenant Lease Agreements(pg 5, 1.4) [1], it is recommended that that landlordshould formulate an Environmental Policy, whichcould include a skeleton policy for the tenant, to

be provided at lease negotiation stages. Appendix Cprovides brief guidance notes on how to develop anEnvironmental Policy.

4.2.2 The tenants perspective

It may make good sense for the tenant to undertake somedue diligence on the building or land prior to enteringinto the lease, which can encompass and be formallylinked to the landlord/ building owners environmentalaudit of performance, as mentioned in 4.2.1. In additionto reviewing the history of the site, including earliercontaminative uses, the fabric of the building itself,

including issues such as the presence of asbestos, thetenant might include the efciency of environmentalgoods and services provided by the landlord. Much ofthis work can be done quickly and easily by desktopsurvey followed by a physical inspection. As EnergyPerformance Certicates come into play, this type ofinformation will be readily available to the tenant andas the Carbon Reduction Commitment begins to bite,questions concerning energy efciency may assumeeven greater signicance.

4.3 Identif opportunities, priorities

and potential responsibilities

Debates and developments relating to the issue ofclimate change are increasingly encompassing the

4.0 RECOMMENDED ROUTES FOR CHANGE

It is appreciated that due to current varying commercial structures, together with differing types and ages and usesof buildings, it is not possible for one shoe to t all. As such, this guide offers a variety of options for change that canbe considered and allows for owners and occupiers to identify and negotiate a suitable starting point where realisticobjectives, goals and benets can be realised with minimal disruption to management and use of the building.

Whether managementis provided in-houseorbyanagent orcontractor, best practice requires both ownerand

managertorecogniseadutyofcaretooccupiersV.Chase,Wragge&Co.LLP

one might be better to foster (rather than to

compel)co-operationbetweenlandlordandatenant.

Itislikelytoyieldmorepositiveresults


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environmental impact of poorly managed buildings.Unless clauses within a green lease allow for a gooddegree of exibility that will encompass unforeseenchanges in early years, it may be better in the rstinstance, to adopt a voluntary and exible agreementthrough a green management plan.

Effective communication between landlord and tenantis vital when implementing mitigation measuresor undertaking refurbishment of any kind withinthe building. Developing agreed environmentalmanagement plans outside of the commercial leasecan prove to be very effective particularly for a singlelet occupancy where responsibilities and realisticobjectives and targets can be set between landlordand tenant . However, a multi-let building may prove torequire more formal routes for setting responsibilities,objectives and targets since partial failure may berealised where occupiers have differing business

priorities and resources.

Maintaining momentum of a strategic environmentalmanagement plan is vital and as such requires aconsiderable amount of commitment from bothmanagement and staff. Once commitment has beensecured, an understanding of current performance,priorities, problems, opportunities and potential barriersneeds to be established. See also Section 6.5 of thisguidance document for further sources of information.

4.4 Memorandum of Understanding(MoU)

The Memorandum of Understanding presents a startingpoint for both landlord and tenant at the more informal

end of the spectrum. The MoU provides a formalmechanism for both parties to discuss issues that willbe included in the lease agreement and in this contextit does not have to be legally binding. Subsequent

methods introduced between landlord and tenantgradually become more legally binding until the nalstage of formal lease agreement , where obligations forgreen management become binding. Much work hasfocused on the development of green MoUs sincethis methodology introduces concepts of green leaseswithout enforcing issues on either party.

The Better Buildings Partnership has published aguidance document which complements and builds onthe previously published Incorporating EnvironmentalBest Practice into Commercial Tenant LeaseAgreements document [1] by relating best practiceand green lease principles that can be incorporatedinto a Memorandum of Understanding (MoU). [28].In essence, the framework for the agreement remainsexible thus allowing a faster route for change withinthe commercial property sector, without having towait for new leases or lease renewal. However, it

recommends that the MoU is legally binding whereverpossible to reduce the risk of partial failure wherethere are shared environmental and energy obligations.It also suggests that the MoU could be time limitedwithout necessarily covering the entire term of thelease to increase exibility.

The guidance sets out 6 key principles for commencingthe development of green leases through MoUs. Theprinciples are as follows:

That a landlord and respective tenants should

develop and agree on an understanding regardinggreen lease issues The agreement should incorporate and be based

on a series of best practice recommendationsthat provide sufcient exibility to encompassongoing initiatives, budgets and variations inbuilding sizes

Wherever possible, the agreement should belegally binding

The agreement need not cover the entire lengthof the lease period

To ensure continuity, the agreement should betransferable

Strive to adopt green clauses over time into theformal lease agreement

The best practice recommendations outlined in theguidance document commonly refer to the need forowners and occupiers to share information collatedand data monitored relating to resource consumptionand waste generation, whilst respecting condentialityconcerns of parties involved. The best practicerecommendations are based around a series of headingswhich include the following:

Energy consumption and efciency. Thereshould be co-operation to reduce consumptionthrough development of joint targets and theundertaking of energy audits with recognition

Actionisneedednowandnotsomemonthsdownthelinewefeelthereisadangerthatthepeople

whocanactlocallytoinuencebuildingissueswill

bedisconnected from thelease. Inanattempt to

address both of these issues, at Land Securities

we are introducing site-specic Environmental

ManagementPlans.Thesedontformpartofourown

certiedEMSbutaremoreofacontractbetween

us,asLandlords,andthegroupoftenantsoccupying

a building. The Plan contains obligations on both

parties.Forexample,wecommittoprovidingtimely

meterreadingsbutrequireouroccupierstopromote

wasterecycling.Thesecommitmentswillvaryfrombuilding to building. So far, the reaction from our

occupiershasbeenverypositivebutitistooearly

toseetheresults.DaveFarebrother,Environmental

DirectorLandSecuritiesGroupPLC


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given for changing in circumstances and tenure.Furthermore, replacement and alterationsto equipment should give due regard tosustainability and efciency and avoid like for likereplacements.

Wastemanagement. A joint strategy shouldbe developed that includes recycling targets,awareness raising campaigns, sustainableprocurement and legislative compliance forboth multi-and single let premises with suitablefacilities provided for waste segregation. Periodicreviews should be undertaken to ascertainprogress and minimise the risk of problems.

Water consumption. Water saving devicesshould be installed wherever possible, includinggrey water and rainwater harvesting schemes.

Day to day management. Communicationchannels should be established throughdevelopment of a Committee that encompasses

all personnel relating to the building management,including suppliers and cleaners whereverpossible. As also mentioned in IncorporatingEnvironmental Best Practice into CommercialTenant Lease Agreements Section A 1.1 & 1.2[1], owners are recommended to provide aninformation pack to tenants to aid the sharingof information and to encourage sharing ofinitiatives between tenants in a multi-tenantedbuilding.

Service charging. As also recommended inIncorporating Environmental Best Practice

into Commercial Tenant Lease AgreementsSection A 3.1, 6.1 & 15.1 [1], tenants should bemade aware of the shared aspects of the servicecharge with respect to energy consumption andany costs relating to green issues. Good practiceundertaken by tenants should be rewardedthrough the service charge.

Refurbishments. As also recommended inIncorporating Environmental Best Practice intoCommercial Tenant Lease Agreements SectionA 9.1 & 9.2 [1], any work that could adverselyaffect performance of the building should notbe undertaken without necessary consultations.

Consideration should be applied to installationof renewable technology wherever possible.

Transport. Consideration should be given byall parties to encourage sustainable methods oftransport through development of Travel Plansand provision of facilities.

Work has also been undertaken by the BBP groupto establish a model Memorandum of Understandingthat incorporates environmental best practice, asmentioned above, within the agreement.

Further information regarding the Better BuildingsPartnership and their work can be found onthe following link: http://www.lcca.co.uk/server.php?show=nav.00500a

British Land has introduced a three-year MoU

rather than include green clauses into a lease to allow

ease of update in order to set new targets. British Land

is happy for the MoU to be legally binding, but would not

want their tenants inability to meet targets set in this to

constitute a breach of contract [29].

4.5 Management Agreements

A Management Agreement is a formal binding contractwhereby one party will be obliged to undertake themanagement of a property owned by the other. Thiscould be a managing agent whose business ismanaging portfolios or individual buildings on behalfof investors. It is also likely to be used to set thebasis for the management of a building occupied bymore than one tenant.

The Working Group established to update the Codefor Commercial Leases, facilitated by the Royal

Institution of Chartered Surveyors has developeda Green Lease Sub-Working Group to developand recommend approaches for including greenmanagement within Management Agreements. Whilstfurther work is underway, to date recommendationsfrom the Working Group suggest the following of aManagement Agreement:

With regard to energy related issues, meterreadings should be available either to the tenanton request or the tenant should employ theuse of smart meters in order that data can be

shared with the landlord. The Display EnergyCerticate should also be kept up to date andthat both parties should work towards low-costconsumption reduction.

For waste management, both parties shouldagree to joint or shared strategies and facilitiesfor minimising waste and for recycling. Partiesshould work with suppliers and contractors toensure that packaging and delivery to the siteis minimised.

Water consumption should be metered andinformation shared and that both parties shouldwork towards employing conservation techniques

and management without excessive costs To maintain efcient building management and

operation, a building committee should beestablished where initiatives between ownersand occupiers can be discussed and shared.

For the purpose of the Service Charge, allgreen initiatives should be reported withinthe documents together with an outline ofcosts and the environmental benets forundertaking initiatives. Consideration shouldbe given wherever appropriate to the use ofsite renewables and Combined Heat and Power

if acceptable to tenants. Also where equipmentis to be replaced, to ensure consideration isgiven to efciency and performance and end ofuse recyclability.


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Further guidance on developing commercial leaseshas been documented by Edward Bannister andpublished through RICS Books. In essence theguidance provides consolidated information andadvice for lawyers and surveyors that encompass theCode for Leasing Business Premises in England andWales 2007, the Service Charge (a link for furtherdetails on the Service Charge Code can be foundin Section 6.6) and other such guidance documents.It also recommends methodologies for negotiatinglease terms and conditions, identies solutions toa number of legal issues, whilst incorporating twosections on energy efciency & certication andgreen leases.

Commercial Leases 2009 a Surveyors Guide (ISBN9781842194324) http://www.tsoshop.co.uk/bookstore.asp?Action=Book&ProductId=9781842194324

4.6 Developing Heads of Terms

The Heads of Terms is in essence, the nal documentthat is agreed between owner and occupier prior todrafting of a legally-binding document by the lawyer.As such, the Heads of Terms should try to reect asmany material agreed obligations and responsibilitiesof each of the parties. Whilst the Heads of Termsthemselves may not be legally binding, it can containspecic green clauses that are to be incorporatedinto the documents that will become legally binding.

In drafting up the Heads of Terms, there are anumber of issues that can be discussed and formallyagreed. Incorporating Environmental Best Practiceinto Commercial Tenant Lease Agreements [1] wasone of the rst published guidance documents withinthe UK that set examples of the issues that couldbe discussed and included in Heads of Terms andleasing agreements. The recommendations are set in2 sections, the rst covers topics to be included innegotiations and the 2nd section covers obligationsthat should be considered when managing an ongoingtenancy agreement.

Since this publication, the Working Group facilitatedby the Royal Institution of Chartered Surveyors, asmentioned in 4.5, has developed a Green LeaseSub-Working Group. The group is currently co-ordinating a series of recommendations that couldpotentially sit as an Addendum to the Code ofPractice for Commercial Leases in England andWales 2007 or as a stand-alone guidance document,which will lead to the development of a model Headsof Terms Agreement that incorporates green issuesand clauses.

Hammersonhas introduced a lightgreen clause withintheirstandardleaseHeadsofTerms.Furtherinformation

can be found on: http://www.hammerson.co.uk/phoenix.zhtml?c=133289&p=resp-ri-green-lease

4.7 Green leases

Whilst shorter lease lengths provide increasedopportunities to introduce green clauses, say at rentreviews or new agreements, the longevity of the leasemay discourage the adoption of larger capital expenditureschemes, most certainly on the part of the occupier.

4.7.1 Light green and dark green leases

Common references being discussed are thedevelopment of either light green or dark greenleases with variations in shades of green in between [30].At the lower end of the scale distinctions for a light greenlease could include setting of obligations for partieswithout targets or legal status to adopt managementpractices that give regard to the environment and theimpact of individual activities. The landlord will wishto protect the operational rating of the building but

anything more burdensome than a target standardmight prove unappealing to a tenant. Incentives throughthe reduction in services charges might prove oneway forward. It may be that the effective working ofservices charges in buildings in multiple occupation willrequire careful energy metering and monitoring (whichitself comes at a cost).

Moving up the scale to a mid green may involve theestablishment and agreement of certain targets. This

may also require development of an environmental orenergy action plan to set responsibilities for monitoringpurposes, measuring achievements against targets andsetting realistic deadlines for parties. This proceduremay require additional costs to seek professional adviceand support for the setting of targets and establishingpriorities. However, agreements need not include legalenforcement should achievement of targets not be met.An example of a mid green term might be one in whichthe tenant covenants to comply with environmentalmanagement policies of the landlord in relation tomatters of resource consumption within the building.

At the dark green end, obligations and targets are moreformalised through Heads of Terms that would resultin legal binding agreements where breach or non-

Where a green approach is to be pursued,the landlord could be considered to be acting

reasonably if any costs of additional expenditureis within a certain percentage (say 5%) of amarket competitive quote. Any increased costsof certain extraordinary items of expenditure tobe incurred should reasonably be split betweenthe landlord and the tenants with the landlordsburden of costs been proportional to theincrease in value of their reversion DLA Piper


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15

achievement could result in either nancial penaltieswith a requirement for a dispute resolution process.Here we might see the formal incorporation of targetsinto rent review mechanisms. The tenants activitymight be much more strictly controlled especiallywhere this might jeopardise the environmentalperformance of the building.

Arguably, the onerous statutory duties and obligationsplaced on landlords, for example through CarbonReduction Commitment (see section 3.2.1) may seem

a relaxation for tenant lease obligations within thelease agreement, and questions may be raised as towhy obligations are required within the lease at all, savecompliance with statutory requirements. However, inmultiple occupation, performance will inevitably varybetween tenants depending on the size of the areaoccupied and the nature of their activities. Effortsundertaken by one tenant may be falsely measuredthrough little or no effort shown by others within thesame building. As such, the landlord and tenant may wishto enforce shared obligations to ensure performance ismaintained between occupants, and whilst a MoU andManagement Agreement can be set (see Sections 4.4

and 4.5), a green lease provides a formal mechanism forensuring good practice is maintained by all parties andnot based on good will by some.

4.7.2 Model lease clauses

To supplement the model MoU being developed bythe Better Buildings Partnership, as mentioned in 4.4,work has also been undertaken by the Partnership topresent generic model clauses that could be insertedinto a lease. The draft guidance on the model clausessuggests areas within a lease that could encompasscertain green clauses. These are presented under theheadings of:

Co-operation Obligation The Environmental Management Plan Development of a Building Management

Committee Data Sharing and Metering Flexibility Restrictions on tenant alterations and Landlords

works

Dilapidations Rent review Dispute Resolution

Further information regarding the Better BuildingsPartnership and their work can be found onthe following link: http://www.lcca.co.uk/server.php?show=nav.00500a

The clauses set by the Better Buildings Partnershipprovide model lease clauses that are set moregenerically giving a lighter green approach. However,for those willing to agree and accept more detailed

and perhaps slightly more stringent darker greenclauses within their contracts, the following providesexemplar clauses that could be considered alongsidethose provided by the Better Buildings Partnership.The clauses below are not a denitive set of clauses,but are merely concepts or ideas which can be includedin an agreement between landlord and tenant. Theymight well go further than is generally commerciallyacceptable

CorporateObligation:

Darker green: The Landlord will provide to

the Tenant an Environmental InformationPack before the entering into of this Leaseand update it annually within 1 monthof the end of the Service Charge Year.

The Environmental Information Pack, asmentioned in Incorporating Environmental BestPractice into Commercial Lease Agreements,Part 1 Section 1.1 & 1.2, is a more formalisedmethod for communicating energy andenvironmental management undertaken orplanned within the building, including provision

of any environmental reports or audits. Whendiscussing terms of the lease contract, thelandlord should inform the tenant by way of theInformation Pack of the availability of metering

Clients seem to feel that starting a new greenlease from scratch is rather radicalbut theyare open to amending existing standard formleases. Discussions have taken place aroundeither amendments to specic clauses in existingleases or dealing with the arrangements throughthe building regulations outside of the leaseIhave been amending on a clause by clause basisrather than a complete redraft DLA Piper.

To a certain extent, therefore, the ultimategreenness of a lease very much depends onthe parties awareness (or lack of) environmentalissues at the heads of terms/negotiation stageDLA Piper

It is also important to mention that poorperformance within any particular tenancy willhave the capacity to inuence comfort andperformance in other tenancies in a multi-tenantbuilding. The underlying notion is that what onetenant does or does not do, could ultimately

impact other tenants in the same building S.MBrooks, 2008


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and monitoring data. It should also inform thetenant of any targets or initiatives underwaywithin the building that the tenant must considerand use reasonable endeavours to comply with.

Mid green: The Landlord to provide in thelease that the cost of such a pack (optional) isrecoverable under the Service Charge

EnvironmentalAuditsAs mentioned in Incorporating Environmental BestPractice into Commercial Tenant Lease Agreements,Part 1, Section 1.5, it is recommended that theLandlord should undertake or procure to undertake anEnvironmental Audit. Clauses can be added as follows:

Dark Green: The Landlord is to undertakeor commission an Environmental Audit [thisneeds to be dened] in relation to the Building[including all let or occupied areas] at intervals

of no less than [annually or 5 yearly] and provideto the Tenant a copy of the EnvironmentalAudit Report and the Landlords intentions forimplementation of any recommendations ofthe Environmental Audit to the Tenant as soonas reasonably practicable after receipt of theEnvironmental Audit by the Landlord.

Darkest Green: This clause can go on to obligatethe Landlord to implement the recommendationsof the Environmental Audit.

Mid Green: The Landlord to have discretion toobtain such an Environmental Audit if it thinks it

reasonably necessary and/or simply provide thatthe cost of such audit is recoverable under theService Charge

Mid Green: a Tenants Covenant could beincluded for the Tenant to carry out its ownEnvironmental Audit in relation to its ownPremises.

For any of the above, drafting could also suggestconsultation on the conclusions of any reports producedand an agreed procedure set as to what steps if any areto be taken to implement is recommendations.

SharingofinformationanddataandMeteringThe trials mentioned in Section 1 of this document anddetailed Section B of Incorporating Environmental BestPractice into Commercial Tenant Lease AgreementsPart 2 (page 9 Communication Issues) highlightedthe need for tenants to work together in multi-letbuildings to ensure maximum efforts were realised andto encourage adoption of best practice by all parties.Working as clusters of tenants proved to be far moreeffective in communicating and addressing initiatives andconcerns. The Better Buildings Partnership providessome clauses with regard to the sharing of information

between Landlord and Tenant but the following Tenantcovenant could be considered in addition to those tofacilitate the development of tenant cluster groups inmulti-let buildings.

The Tenant is at his own cost, required to captureand supply to the Landlord all informationreasonably obtainable in relation to theconsumption of resources (energy, water) at thePremises at intervals of [no less than[monthly/quarterly/annually] throughout the Term] andthe Tenant is to permit the Landlord to disclosethis information to other Tenant of the Buildingor otherwise as the Landlord thinks t

If the Landlord so requires the Tenant shalloperate any computerized data system suppliedby the Landlord [at the Tenants cost] for thecollection of data as to the Tenants consumptionof electricity and/or water at the Premises andthe Landlord shall be entitled to enter upon thePremises to carry out such repairs, make suchconnections, make any necessary replacementsand lay such cables as are necessary for theoperation and maintenance of the computerised

data system [PROVIDED THAT any such systemwill not materially affect the operation of theTenants own computer systems]

TheEnvironmentalManagementPlanIn Section 4.3, Environmental Management Plans arepresented as a means for identifying and addressingopportunities to improve environmental performanceand incorporate best practice. The Plan should includea description of potential environmental risks andthe methods by which the risk can be controlled andpotential environmental impacts minimised. Issuesto be included in the Plan could be wide ranging butlikely to cover the following key topics and should be aframework within which all levels of employees shouldoperate.

Energ efcienc

Transport

waste Management

Storage and disposal issues

water Management

Current legislation and Best Management

Practice.

The Environmental Management Plan should bereviewed on a regular basis and should set targets,responsibilities, timescales and methods for monitoringand recording. As such, a possible clause could beconsidered where a Landlord has an EnvironmentalManagement Plan in place:

Dark Green: The Tenant is to comply with allproper and reasonable requirements imposed bythe Landlord in relation to the implementationof the Environmental Management Plan so as to

achieve the stated aims of the EnvironmentalManagement Plan. The Landlord will not[unreasonably] impose requirements under thisclause which materially restrict the rights of


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the Tenant under this Lease [and/or which areunreasonably onerous].

Waste Management in England and Wales is now beingfurther regulated under the new Waste Controls(England and Wales) Regulations 2009, which are due tocome into force in October. These will in effect , revoke

certain aspects of existing legislation, and will apply nowto all that produce, import, carry (or transport), keepor store, treat, dispose of waste or operate as wastebrokers or dealers. Incorporation of best practiceinto lease clauses will minimise risk and liabilities toall parties. Further details with regard to this issueare presented in Incorporating Environmental BestPractice into Commercial Tenant Lease AgreementsPart 2 , Section B (page 9 Communication Issues). Toinclude waste management more specically in leasecontracts the following could be included:

The Tenant is to comply with [the WasteRequirements] and all other proper andreasonable requirements of the Landlord inrelation to the disposal of Waste originating fromthe Premises and deposited by the Tenant in thecommunal facilities provided by the Landlord.

Further details with regard to the requirements of thenew waste regulations can be found on the linkhttp://www.netregs.gov.uk. However, sufce to say that thewaste Requirements should include:

The practical procedural requirements andarrangements for disposal of waste from thePremises.

The collection of data and recording of the wastedeposited.

The segregation, sorting or separation ofwaste by the Tenant and its deposition in theappropriate receptacle/container.

Security and condentiality issues

AlterationsSupplementing the Better Buildings Partnership clauses,the clauses could be more specic to include Tenant

covenants which aim to maximise efciency andminimise waste as follows:

The Tenant is not to carry out any alterationsor additions to any Premises Plant or Conduitsforming part of the Premises [without theprior written consent of the Landlord] [suchconsent not to be unreasonably withheld ordelayed] unless such where such alterations oradditions include, where appropriate, WaterConservation Devices and Energy ConservationDevices [which shall have a benecial effect on

any EPC for the Premises or the Building].

Clearly the phrase Water Conservation Device needsto be dened but can include although not exhaustive-

installation of ow restrictor valves, spray tapsor tap aerators

rain water harvesting devices grey water devices for ushing installation of passive infra red sensors on

urine or ushing point of use source heaters under sinks for hot

water.

Energy Conservation Devices can include, and againnot exhaustive,

Centralised controls for heating, lighting andcooling,

Seven day timer switches for vending machinesand water cooling systems

Changing T12 uorescent tubes to T8 (or evenbetter to T5)

Installing occupancy sensors/passive infra-red sensors in rooms that are not occupiedfrequently including corridors and toilets.

Installing photo cells that can detect naturallight levels to regulate lighting in the ofcezone

Amending lighting congurations to preventlighting of regularly unoccupied areas.

Variable speed drives to allow comfort control Zoning of air conditioning systems to allow

variable comfort.

Clearly there can be general denitions of whatConservation Devices are appropriate and most up todate and possibly cost effective at the time the Tenantproposes to carry out its alterations. Furthermore,regarding the Buildings Common Parts, the Landlordcould also undertake similar obligations and providedetails of actions and initiatives implemented as partof the Information Pack provided to Tenants.

In summary, it is clear from the work undertaken todate that a one size ts all approach is not appropriate

for the UK at this time. Guidance and templates canand have been developed but the practical difcultiesthat have been encountered reect the fact that theUK is just embarking on a transition and far deepercommitments are required other than documentaryformalities and frameworks. It will require culturaland behavioural change not just within employeesand shareholder groups but with the public andGovernment bodies for positive investment valuesand cost benets to be realised. Section 5 providessummaries of where generic rewards and benets canbe realised if green management within the leasing

structure is adopted.


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5.1 As a commercial propert investor

Portfolios of investors are often large spanning regions orcountries and whilst green lease principles can easily beincorporated and adopted with new tenancy agreements,the UK building stock comprises 98% existing buildings.As such, an investor is faced with greater risks relatingto performance and with the introduction of the EnergyPerformance Certicates (as mentioned in 3.2.2), EPCs

are a statutory requirement at the point of sale andletting. Where tenants occupying an existing buildinghave maintained good practice through either of themethods outlined in Section 4, there is a greater chanceof better returns on investment.

Recent surveys undertaken by GVA Grimley haveidentied that in terms of sustainability the largest impactwill be within the ofce sector and that investors areincreasingly considering the use of green leases althoughthere is a noted requirement for an increased awarenessbefore owners and occupiers actually adopt them [32].

However, any investor considering the acquisitionof commercial property will wish to undertake duediligence in relation to the risks involved in thetransaction. Because of the caveat emptor rule thevendor owes no duty of care in relation to the stateof the premises unless specic representations havebeen given in the course of contractual negotiations.It is a task for the purchaser, then, to make enquiriesand ask appropriate questions, seeking contractualassurance where necessary. This can be a timeconsuming task, especially where there are a numberof properties in a portfolio sale. The incorporation

into green leases of benchmarked standards greatlyassists in providing investors with some assuranceon a range of issues of increasing importance whenconsidering investment decisions.

Furthermore, as mentioned in Section 1 in IncorporatingEnvironmental Best Practice into CommercialTenant Lease Agreements [1] provision of a tenantinformation pack to all tenants (that includes energy andenvironmental management of the building, performanceratings, environmental policy and copies of audits/reports), can aid the data collation for investors and easethe sale of the premises.

5.2 As an occupierFeedback from individuals within the British Councilof Ofces Occupier Group suggests that occupiersare becoming increasingly aware of the issue of greenleases and there is a notable increase in the willingnessto accept change. However, at present the difculty liesin the comparisons that will need to be made betweenbuildings from an occupiers perspective.

Through Management Agreements and the adoption ofa legally binding green lease certain benets ought toaccrue to an occupier including:

An assurance from the landlord that facilitiesand services included under the agreement willencompass environmental issues that considerefciency;

A clear division of responsibility for the existingstate of the premises both in terms of itsenvironmental risks and questions of maintenanceand monitoring of environmental performance;

Sharing of obligations to ensure the efcientrunning of the building through the work of themanagement committee;

Potential rent rebate where the landlord fails tomeet obligations in relation to matters such asenergy efciency;

Effective mechanisms for dispute resolution.

5.0 GENERIC REwARDS & BENEFITS

The Green Value collaborative project undertaken in North America in 2005 [31] concluded that greenbuildings can achieve greater value than their conventional equivalentsthe green building industry and othersmay be failing to get the message across that the main beneciaries are occupants.

a lot of attention has been focused on energy savings. However, these are usually less than 1% of businessoperating costs. By comparison, total annual real estate expenses are usually around 10% of such costs whilststaff costs can be as high as 85%. This means that the biggest return on investment should arise when greenbuildings improve business productivity. Instances were found of green features improving productivity, butneitherowners, developers, appraisers, nor the green building sector, fully value or communicate this advantage.

Experience from the Australian Green Lease Schedule is that the costs associated with refurbishment andretrotting can provide economic benets for both parties.[2, 5]


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The survey undertaken as part of the Property IndustryAlliance/ Corenet UK Occupier Satisfaction Index [33]identied that sustainability issues were very importantto almost 1 quarter of respondents but over 80% thoughtthat over the forthcoming year, the issues wouldbecome increasingly important to occupiers. A keydriver for an increase in sustainable building provisionwill be occupier demand.

5.3 As a landlord

Void spaces in multi let-buildings present an array of

nancial problems for landlords. Increased occupantsatisfaction can lead to better tenant retention,improved productivity and thus decreased void periodswithin the building [34]

The adoption of green leases can form an importantfoundation of the landlords corporate socialresponsibility programme and might likewise attracttenants sharing the same values, that is those whosee the green lease as an important part of its estateand human resources strategies. Depending on thewording and structure of the lease, there is always adanger that the landlord may bear responsibility forthe activity of the tenant, so attracting like mindedtenants may be valuable in its own right.

The landlord can provide transparent information to

incoming tenants on the state of the premises andrunning costs in a service charge information makingthe marketing of commercial property easier indifcult markets.


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6.1 The Landlords Energ Statement(LES-TER) and the Tenants EnergRevie (TER)

The British Property Federation has undertaken theLES-TER project to develop a tool that enables landlordsto assess and measure the energy consumption in areaswithin a building that is controlled by them and not bythe tenant. It also provides a method for disseminatingthis information to tenants within the building and forallowing comparisons between energy consumptions ofsimilar buildings. Further information about this toolcan be found on www.les-ter.org/page/home.A furtherproject (The Tenants Energy Review) has developeda method for tenants to also measure their energyperformance along with carbon dioxide emissions for

benchmarking purposes. Further details can be foundon http://www.les-ter.org/page/ter

6.2 IPD Environment Code

The IPD Code is a new method for measuring theenvironmental performance of commercial basedbuildings. It is a comparable method for assessingenvironmental performance of commercial buildingsirrespective of location and type of building.

The benets for using the code are numerous simply

because the Code can be effectively used as a tool thatcan reduce the environmental impacts of a buildingthrough aiding compliance with relevant environmentalregulations and reducing risk and liabilities for bothparties. An increased understanding of the impact ofoperations and management of the building on theenvironment will also enable comparative assessmentsto be made against other buildings and organisationsimplementing the code. The Code also promotes anawareness within the sector for procurement andenvironmental specications relating to new andexisting buildings.

The Code requires a variety of both quantitative andqualitative data input from a number of sources such asenergy, water and waste.

Further information about his method can bedownloaded from http://www.ipdoccupiers.com/Default.aspx?TabId=1632

6.3 Energ Performance Certicates(EPCs)

A detailed description of EPCs is provided in Section3.2.2. When selling or letting a commercial building,

a free copy of the EPC should be provided alongwith other written information. This might be asingle EPC, where the whole building is being let,

but might have to be tailored where the buildingis being part let especially where that part of thebuilding has separate heating, lighting or ventilationsystems. Further information regarding EPCs can befound in the Communities and Local Governmentguidance documents published in 2008 [35] and [36]http://www.diag.org.uk/media/44200/epc%20and%20non%20dwellings%20guide%20for%20building%20owners%20-%20landlords-tenants%20748603.pdfhttp://www.diag.org.uk/media/55198/nondwellingsguidance.pdf

6.4 Commercial Leases

Further guidance on developing commercial leases hasbeen documented by Edward Bannister and publishedthrough RICS Books. In essence the guidance provides

consolidated information and advice for lawyersand surveyors that encompass the Code for LeasingBusiness Premises in England and Wales 2007, theService Charge and other such guidance documents. Italso recommends methodologies for negotiating leaseterms and conditions, identies solutions to a numberof legal issues, whilst incorporating two sections onenergy efciency & certication and green leases.

Commercial Leases 2009 a Surveyors Guide (ISBN9781842194324) http://www.tsoshop.co.uk/bookstore.asp?Action=Book&ProductId=9781842194324

6.5 Environmental ManagementPlans

The Institute of Environmental Management andAssessment has published a Good Practice Guide forthe establishing of Environmental Management Plansentitled Practitioner Best Practice Series Volume12 December 2008. This can be ordered through thefollowing link: http://www.iema.net/shop/product_info.php?cPath=27_29&products_id=9472

6.6 The Service Charge Code

The Service Charge Code came into force in April 2007and it provides guidance that encourages and promotesthe adoption of best practice for the arrangement ofservice charges within the Commercial sector. Furtherdetails with regard to this can be found on the web-sitehttp://www.servicechargecode.co.uk

6.0 OTHER RELEVANT SOURCES OF INFORMATION


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APPENDIX A:Case studies from trial

CNC Property Fund Management

Case Study

About UsCNC Property Fund Management

(CNC PFM) is a nationwide property

management and investment

company with an extensive

commercial and industrial portfolio.

CNC own, lease and manageClarence House in Newport. This is

a multi-storey office building, which

was purpose built in 1976 as a head

quarters for a national company. It

is currently leased to 18 tenants

over 10 floors, giving an

approximate area of 100,000 ft2

(9290 m2) for the total building.

Our commitment to theEnvironmentGiven the age of Clarence House,

much refurbishment is now

underway to improve the energy

efficiency of the building. However,

we realise that occupant

participation is essential to maintain

the efficiency of Clarence House.

This is particularly challenging in abuilding where individual monitoring

(and therefore charging) of energy is

extremely difficult, although work is

underway to aid metering in the

future.

In order to continue our efforts forreducing our environmental impact, we

joined the Sustainable Environmental

Improvements in the Commercial

Sector (SEnvICS) project managed

by Cardiff University early in 2007. As

participants to the project, we received

a free building survey of Clarence

House, which identified opportunities

to improve both energy efficiency and

waste management within the building.Working with some of our new and

existing tenants we have put in place

several in

good practise guide green lease agreements

Documents