From greenish to greener: how “green” is your lease?

 

At present it is unlawful for a landlord to let commercial premises in England and Wales if the energy performance certificate rating for the property is below the minimum rating of E (subject to certain exemptions). The government has committed to raising this minimum rating to B by 2030 and recent consultation proposals suggest an interim step of a C rating in 2027. Whatever the results of the consultation, landlords are faced with a higher regulatory bar as to the energy efficiency of premises which they hope to let. That regulatory requirement need not be all burden though – there are opportunities to turn compliance obligation into selling point.

With energy costs continuing to increase and the demand for quality rather than quantity of office space the new (mid/post?) pandemic normal, energy efficient premises may attract a rental premium. Corporate occupiers with their own high profile PR on net zero carbon commitments may be more inclined to agree green lease provisions, which might include the sharing of the costs of energy efficiency improvements. After all, if the result of careful carrying out of energy efficiency improvements is a lower electricity bill for the tenant, or a reduced service charge, it is perhaps appropriate that the tenant pays in part at least for that benefit.

Co-ordination of effort – to raise the EPC rating to meet the landlord’s regulatory requirements, and to reduce carbon emissions to achieve the tenant’s net zero carbon target – might well produce a fortunate synergy. Now is the time for landlords to press tenants to agree green lease provisions that foster engagement and the sharing of information and effort, to encourage the carrying out of energy efficiency improvements by permitting such works within lease parameters but without the need for separate consent, and to reduce waste and tenant cost by ring fencing energy efficiency improvements from the end of term obligation to reinstate.

And in return and in order to be the landlord of choice, landlords should take the opportunity to include green lease obligations on the part of the landlord, not just the tenant. Every lease agreed without addressing green issues is a lost opportunity for the commercial lettings sector to play its part in tackling the climate emergency, one letting at a time. The opportunity is there to offer reciprocal commitments and work with tenants to improve premises to everyone’s benefit, one green lease at a time.