Green Leases. More relevant than ever?

A new generation of green leases is emerging, one which promotes enhanced collaboration and offers tenants opportunities to reduce operational costs while achieving truly sustainable workplaces.

Early green leases were focused solely on energy efficiency, and reducing water use and waste. That’s now changing as landlords and tenants feel the pressure from incoming regulations and growing sustainability expectations among their customers, employees and shareholders. Today there is a shift toward reducing overall carbon emissions and delivering proof of net zero progress.

Some leading examples are also looking beyond the environmental side, to cover social and governance issues as well. Done well, these can create spaces that are as good for people as they are for the planet. This is particularly important in enticing staff back to the office post the covid pandemic.

Leading green leases are starting to address criteria such as the use of sustainable materials in fit-outs. Others are now considering the addition and maintenance of high-quality amenities that better support employees’ daily needs and reflect companies’ health and wellbeing commitments, such as maintaining a high level of indoor air quality and natural light, along with social responsibility or diversity and inclusion clauses.

These sustainability-linked attributes can go a long way to improving employee satisfaction. It’s not only about providing a productive and welcoming environment that justifies the commute, but shows companies are taking their sustainability commitments seriously. All of this helps to attract an increasingly sustainability-conscious workforce and retain staff in the long-term.

There needs to be enhanced collaboration between landlords and tenants. Establishing common areas that deliver benefits for both parties is critical. Energy use reduction is the top priority, followed by installing onsite renewables. Whatever the lease structure, tenants should be closely involved in conversations around any sustainability upgrade works to ensure disruption is minimized and additional operating expenses are minimized.

The attraction then of green leases is in making a difference through superior sustainability performance but the following considerations are key:

  • Make sustainability a priority from the start – Tenants have greater leverage to execute stronger green leases if they prioritize sustainability when they begin their building search. Sustainability performance criteria and the landlord’s commitment to achieving greater environmental performance should guide site selection. Too often, tenants decide on a property and then try to shoehorn green lease clauses into the contract.
  • Bring the right people to the table – Sustainability experts should be at the table during lease negotiations. If not, lawyers and agents may remove green lease clauses due to adopting the traditional approach and/or to simplify the lease.
  • Maintain flexibility – Green lease clauses should focus on sustainability performance rather than installing specific materials and equipment. Overly specific clauses may inhibit action that can achieve optimal results. Material or items that are efficient today may not be in five years’ time.
  • Collaboration – Landlords and tenants must be committed to continually evaluating and discussing progress and work to achieve better outcomes. If landlords seem unwilling to engage in a collaborative effort, it may be wise to consider a different property.

James Chisholm is a Real Estate Partner at Keelys LLP

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