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Green Lease Toolkit and Memorandum Of Understanding

With the ever increasing focus on environmental concerns the property industry is being pushed to become more energy efficient. As reduction targets cannot simply be met by improving the efficiency of new buildings, attention is now being given to existing buildings.

The Better Building Partnership (BBP) has issued a new version of its Green Lease Toolkit (first issued in 2009) and a new Memorandum of Understanding (MoU) to encourage greater dialogue on environmental issues between owners and occupiers of both new and existing buildings.

A green lease is a standard form lease with additional clauses included to provide for the management and improvement of the environmental performance of a building. It can also address wider sustainability issues such as water management, waste management and use of sustainable materials for buildings. The provisions in the lease are legally binding on the parties and remain in place for the duration of the lease term. The extent to which green clauses will be adopted depends on how ‘green’ the parties wish to be and the circumstances of the transaction (eg age and nature of the building).

Alternatively if the parties disagree about adding green clauses to their lease they can enter into a MoU. This is a separate and voluntary agreement between owners and occupiers which is not legally binding and can remain in place for any chosen length of time and which can run alongside a lease. This addresses the same matters as the green lease clauses, but cannot be enforced if either party is in breach of their obligations under the MoU.

Although primarily relevant to commercial properties, residential property owners and occupiers should also be considering adopting either green lease clauses or a MoU, given increased environmental pressures.

Both the ‘green’ lease clauses and MoU address the following matters:

  • promote and discuss strategies to improve the environmental performance of the building
  • sharing of data on environmental performance and metering for different parts of a building
  • limitations on the parties’ ability to do work to the building if it will adversely affect environmental performance of the building
  • reinstatement of any tenant alterations made which may adversely affect environmental performance; this clause, if adopted, would relax the need to reinstate where it would adversely affect the environmental performance unless the landlord reasonably required it, and
  • wider scope for the parties to carry out works which enhance environmental performance.

A MoU would also be suitable for existing leases where both parties want to deal with environmental performance of the building, but have already signed a lease.

Whilst it is not currently obligatory to include green lease clauses in a lease or enter into a MoU energy efficiency and sustainability issues are being given increased attention. The property industry is going to have to seriously consider ‘green’ issues when agreeing heads of terms failing which the government may legislate.

It is advisable to obtain legal advice before agreeing to enter any model clauses into a lease or entering into a MoU as the nature of transaction and building is likely to dictate its applicability.

For more information please contact Simon Ewing, Partner

T: +44 (0)20 7203 5330