New green lease provisions to set market standard

The Better Buildings Partnership (BBP) has updated its green lease toolkit – a collection of green lease provisions and guidance aimed at embedding green leasing and sustainable property management in leases.

The launch will see renewed focus and discussion on sustainability as part of the landlord and tenant relationship. Although the updates provide a range of options to include in leases, depending on the type of asset and the property management priorities, it is likely that where green provisions are to be included, there will be some market consolidation around use of the toolkit (in the same way there was when the original toolkit was published a decade ago). In time, the toolkit may develop into a benchmark for investors and valuers assessing the sustainability credentials of an asset.

The Better Building Partnership green lease toolkit

The Better Buildings Partnership (BBP) is a collaboration of leading property owners who are working together to improve the sustainability of commercial buildings.

The original Better Buildings Partnership green lease toolkit drove some market consolidation around the options and with renewed market engagement with environmental, social and governance (ESG) initiatives over the last few years there has been much anticipation over this update.

The previous version did not address more recent concerns such as the more onerous regulatory environment and new technologies for data collection, analysis and reporting. Where green lease principles have been included in leases, they have often followed the structure and drafting of the BBP clauses.

The new toolkit has been updated in the following ways:

• An expansion of the areas covered – acknowledging increased awareness from owners and occupiers of where sustainability can be embedded in the day to day relationship including controls (and in some cases more flexibility) in relation to use, alterations and Energy Performance Certificates (EPCs).
• Renewed focus on data sharing – both owners and occupiers will want to measure and benchmark their sustainable activity at both property and organisational level. Key to that is a workable data sharing arrangement.
• Shades of green – the updated provisions expressly set out different options to reflect a choice depending on the parties’ sustainability commitments and the nature of the property.
• Heads of terms – the new toolkit gives guidance and suggested text for use in heads of terms. This may be particularly useful when owners and agents are dealing with occupiers who are not familiar with these sorts of commitments (and gives a useful independent benchmark to point them towards).
• Green Lease Essentials – BBP has added a useful checklist to use to benchmark existing provisions and provide an explanation of where sustainable interventions are possible. The toolkit suggests that it could help investors and analysts understand whether organisations claiming to utilise green lease provisions have the necessary areas covered. It will be interesting to see whether this part of the toolkit is used by valuers and analysts (or, potentially, authorities interested in stamping out greenwashing).

We anticipate that many landlords will be reviewing their current drafting (and implementation of property management) against the toolkit to ensure broad alignment with (if not total adoption of) some combination of the BBP provisions.

How to choose the right combination of green lease clauses

Before implementing new green lease clauses, landlords need to ask whether it is going to work. Contractual provisions on their own do little. The relevant property management processes for the asset or portfolio need to be put in place and compliance monitored and possibly enforced. Inclusion of provisions in leases only for the purposes of being able to say that the lease is green with no demonstrable action could lead to regulatory enforcement for greenwashing in the future. Now is the time for investors and occupiers to consider where they want to go with sustainable leasing and put in place the processes as well as the drafting to make it happen.

Choosing the right sustainable provisions for leases is a collaborative exercise between landlords, property managers and legal advisers. Although they might not be involved in setting the organisational or site-specific sustainability agenda, the occupier point of view is also important and will be listened to by the more enlightened property owners.

Felicity Lindsay is head of commercial development and investment (UK) at Gowling WLG