As the world becomes increasingly environmentally conscious in all aspects of life, it falls upon commercial landlords to adopt ethical and sustainable solutions to property development and management.

Obligations on landlords are becoming increasingly stringent as the government strives to meet its commitment to become net zero by 2030. However, this is synonymous with environmentally friendly solutions that are becoming increasingly popular in the commercial markets as more and more landlords recognise the value in optimising returns and minimising risks.

In addition, legislative change has influenced UK property law, including the need to abide by minimum requirements for energy performance certificates (EPC) in business premises since April 2018 as a result of the introduction of the Minimum Energy Efficiency Standards (MEES) under the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015.

MEES requirements were strengthened in 2023 when letting a commercial property with an EPC of F or G became unlawful.

As the commercial real estate landscape shifts, seeing more demand for sustainable solutions in the sector is exciting, with green leases gaining popularity.

With approximately 42% of investors already using green leases and a further 37% intending to have them in place by 2025, according to property consultancy company Jones Lang LaSalle, the Gordons Partnership commercial property team has explored what green leases are and why they are growing in appeal.

What is a Green Lease?

A green lease contains a series of additional clauses, imposing an obligation on the landlord and tenant, intending to help manage and improve the environmental and social performance of a building.

Although clauses and provisions will vary from lease to lease, typical examples of additional obligations and responsibilities to minimise carbon emissions may include:

  • Maintaining an EPC and other energy-efficient measures.
  • Data sharing, for example, utility consumption.
  • Waste reduction and management.
  • Sustainability relating to repairs and alterations.
  • Efficient water use and consumption.
  • Compliance with statutory environmental standards such as MEES.

How will Green Leases affect standard commercial property leases?

Green lease clauses may impact commercial property leases in various ways, including:

  • Landlords may build the costs of improving the environmental performance of their building into the service charges.
  • Tenants may be prevented from altering the building in a way that negatively affects the building’s EPC rating or environmental performance.
  • Tenants may not be required to reinstate alterations at the end of their lease term, which would adversely affect the environmental performance of the building.
  • Forfeiture for breach of green lease clauses would be considered unfair.

Benefits of Green Leases

In addition to the benefits offered to the planet, landlords and tenants will find that several aspects of green leases are advantageous to them, including:

For tenants:

  • Reduced utility consumption, saving them money.
  • Ability to meet net zero carbon objectives.
  • Demonstrating sustainable values within their business and to potential and existing staff.
  • Ability to support sustainability commitments or ESG policies and requirements.
  • Plan and understand sustainability matters.

For landlords:

  • Protect long-term value and investments in the property.
  • Protect buildings from anticipated policy, regulatory and legal changes that are projected for the near future.
  • Help buildings adhere to expected disclosure standards.
  • Comply with any environmental, social and governance (ESG) or net zero strategies of clients.
  • Respond to demand for sustainable buildings.
  • Broaden appeal to sustainability-focused lenders, investors and funding.
  • Encourage mutually beneficial behaviours with tenants.
  • Incentivise tenants to use the property efficiently.
  • Enhance corporate image.

Commercial Property Solicitors London and Guildford

This article should not be taken as advice on any particular circumstance, and legal advice should be sought for a specific matter.

Gordons Partnership’s commercial real estate team draws on their decades of combined experience to assist clients with buying, selling and leasing commercial properties in Central London, Guildford and surrounding areas.

Having acted for business owners, entrepreneurs, lenders, investors, and corporate and private clients in a range of property types, including nurseries, care homes, schools, sports grounds, shops and pharmacies, our plethora of experience ensures that you are receiving the best advice and guidance throughout your matter.

To speak to our team today about drafting, signing or implementing a lease with green clauses, please call 020 7421 9421, 01483 451 900, email sols@gordonsols.co.uk or fill in this contact form.