Negotiating to net zero: the occupier perspective on green leases

Landlord-tenant relationships have sometimes been seen as somewhat adversarial, with one party tending to ‘win out’ at the cost of the other.

Yet with the Better Building Partnership (BBP) acknowledging that as much as 70% of a buildings’ emissions are attributable to occupier activities, and with landlords often retaining responsibility for a building’s fabric, services and surrounding infrastructure, it’s clear that meeting the challenges associated with reaching net zero will require a far more collaborative approach.

Green leases provide a robust commercial framework with which to navigate owner-occupier relationships, putting obligations on both to manage buildings effectively. But while we often hear about owner or investor priorities, occupier objectives and challenges around green leasing are less well understood.

As head of occupier sustainability at CBRE’s ESG consultancy, I work with leading property occupiers around the country to help make their estate more sustainable. I also represent occupiers on the BBP’s owner and occupier forum, which brings together decision-makers from both sides to help facilitate the transition to a more sustainable built environment.

In this piece, I’d like to offer some insights into occupier views on green leases and describe how, when implemented effectively, they can create positive outcomes for both landlords and tenants – not to mention the environment.

Green leases: where do occupiers currently stand?

With CBRE research showing that nearly 50% of our occupier clients have set a goal of achieving net zero in their real estate by 2030, my first key takeaway is that many occupiers are currently feeling nervous about how they will get there.

Most occupiers are now aware just how dependent they are on owners for at least some of the delivery of their real estate net zero goals, and are apprehensive about the implications on rent and service charges if landlords invest in energy upgrades and new sustainability features.

The demand on occupiers in terms of reporting is also causing significant concern. While an owner request for annual energy, water and waste data may sound straightforward enough, one large commercial occupier I work with has 1,500 buildings around the UK belonging to 1,200 different landlords.

With no industry standards around reporting, the picture gets very complex very quickly for this occupier, as well as many others across the industry who are in a similar situation. There are other constraints too. Occupiers tend to have numerous buildings in their portfolio, but with limited lease events between now and 2030, they’re unsure how to influence landlord/s in helping them reach net zero without natural breaks and opportunities to discuss the terms of their lease.

What does good practice look like?

Green lease frameworks provided by the likes of the BBP or Green Lease Leaders are starting to help address these issues. At CBRE, we’re helping occupier clients to develop frameworks based on these best practices. We’re also helping them consider some of the practicalities in executing their framework, moving it from theory to practice. We ask questions around data capture, existing processes and policies, and current landlord engagement. We’re delivering the tools, processes and training required to help occupiers effectively negotiate terms.

We’re also encouraging occupiers to join our ‘Green Lease Cohorts’, where we bring together similarly-minded organisations so they can learn from the experience of others and we can create the market signal to landlords on the importance of this to occupiers.

A more collaborative road ahead

It’s clear to me that our industry needs to adopt a much more collaborative mindset around green leasing if we are to reach shared net zero goals.

The coming years are going to present some really complex challenges for landlords and tenants alike as reporting standards evolve at local, national and international level. Both parties also need to be empathetic and foster a better understanding of each other’s challenges and constraints.

Experience has shown me that the more collaborative we can be, the better the outcomes will be for both sides. While the market is now wising up to this fact and we are moving in the right direction, there’s still lots more work to be done. My hope is that, aided by green lease frameworks, we can find the common ground among all our different interests.

As a parting remark, the BBP issued its Green Lease Toolkit in January 2024, the first time it has been updated since 2013. So, whether you’re an owner or occupier, if you’re looking for support in this area, this would be a great place to start.

Allan Wickham is head of occupier sustainability at CBRE’s ESG consultancy