The real estate and construction sector is currently responsible for almost 40 percent of final global energy use1. Luke Maidens, a Partner and Head of the Real Estate Litigation team at Blacks Solicitors, shares his insight on the current government legislations, frameworks and initiatives that aim to reduce the environmental impact of commercial real estate.
Issues for the real estate sector
At the current rate of development, 80 percent2 of buildings standing today will still be in use within the next fifty years. The industry must therefore shift its focus to long-term solutions for these existing properties to meet net zero requirements, as part of the UK Government’s Net Zero ‘Build Back Greener’ strategy plan.
Legislations and frameworks;
Green leases
A ‘green lease’ is best understood as a lease which includes provisions encouraging or requiring a landlord and/ or tenant to limit or reduce the environmental impact of the building. There isn’t a set checklist which defines a ‘green lease’, it must simply contain commitments that are intended to boost the sustainability of a property and its environmental impact.
Green leases can be categorised into ‘light green’, ‘medium green’ and ‘dark green’ to indicate the varying degrees of commitments that landlords and tenants can make.
Light green clauses are typically not legally binding and impose limited commitments to improve the energy efficiency of a property. Dark green clauses are likely to be much more onerous and legally binding. Medium green clauses sit somewhere between the two and are often included in the lease itself, the building policy or estate regulations.
Examples of various clauses include;
- Giving the tenant a right to install charging facilities for electric vehicles;
- A clause prohibiting alterations or repairs that negatively impact the property’s EPC rating.
- General use, specify obligations on the use and management of the property in accordance with sustainable principles;
- Energy efficiency, although not yet enforceable, including a clause stating that all/ a percentage of electrical power to be from renewable energy sources.
Minimum Level of Energy Efficiency Standard (MEES)
The MEES standard was first introduced in March 2015 by the Energy Efficiency Regulations. Initial restrictions were brought in from the 01st April 2018 and further restrictions from the 01st April 2023, which meant landlords in the UK were no longer able to continue letting buildings with an EPC rating of less than E.
Repurposing existing properties, ensuring compliance by 2023 in accordance with MEES and achieving net zero by 2050 contributes to a reduction in carbon emissions and future proofing properties against further legislative requirements on energy consumption and sustainability. Businesses across the UK must work towards specific environmental, social and governance (ESG) goals and policies which act as a framework to help businesses meet carbon footprint targets easier.
In practice
The need to achieve net zero is not only desirable but necessary for all. Parties can incorporate clauses within a lease for the sustainable operation and occupation of a property, however, it is important that owners and occupiers collaborate to achieve an agreement.
Introducing green lease clauses and frameworks will support real estate properties in scoring highly on benchmarks such as Real Estate Environmental Benchmark (REEB). Scoring high on these benchmarks is likely to result in better returns for landlords, financial savings for tenants, whilst also achieving greater energy and resource efficiency in return. For investors and property developers, there is a need to assess and clearly outline ESG related goals and commitments in order to future proof the real estate sector.
