Gregg Latchams - Green Leases April 2014


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A brief look at Green Leases and how they can be a useful legal tool for business tenants looking to implement sustainable measures.

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Gregg Latchams - Green Leases April 2014

  1. 1. 1 Green Leases Julian Pyrke Wednesday 02 April @-Bristol
  2. 2. 2 Julian Pyrke • Partner • Commercial Property • 0117 906 9421 •
  3. 3. 3 What is a green lease? • A term often used to describe several different types of documents or clauses to cover different types of environmental obligations • Not a lease as such • The Better Buildings Partnership – “Green Lease Toolkit” • Usually contained within a commercial lease, but sometimes not…
  4. 4. 4 What is a green lease? • May be used to document more than just “energy efficiency” in buildings and may be used to document wider environmental impacts and sustainability: – water management – use, efficiency, fittings – waste management – recycling, minimising waste – sustainable materials – use of materials for alterations – green transport – bikes, car share schemes, showers • Documents joint objectives of both Landlord and the Tenant
  5. 5. 5 Shades of green • Light Green – tend not to be legally binding – limited commitment (e.g. tenant to do nothing that may prejudice the EPC) – to be limited in improving energy efficiency only • Dark Green – legally binding – breach leads to forfeiture – significant targets to be met on energy efficiency and waste measures
  6. 6. 6 Shades of green • Medium Green – a bit of a “pick and mix” between light and dark – depends upon the nature of the building and the circumstances and what the Landlord and Tenant are seeking to achieve
  7. 7. 7 Structure of provisions • Do clauses go into the lease? How does this interact with the Landlord’s remedies – forfeiture or separate remedy for a breach? • Use of Tenant’s regulations, estate regulations, Tenant’s handbook – if incorporated in the lease they will be binding. • Requirement in the lease to observe an environmental policy for the building – usually broad, aspirational, no binding environmental principles. Query remedies for a breach of these?
  8. 8. 8 Structure of provisions • Use of Memorandum of Understanding – tends to be used where there is an existing lease in place – flexible and cost effective – aims to create a joint working relationship – green clauses can be used on the grant of a new lease or at renewal – agreed between Landlord and Tenant – co-operative agenda and outside lawyers’ hands – not legally binding – sits outside the lease
  9. 9. 9 Tenant’s Works • Tenant needs approval of Landlord for any works they intend to carry out • Need to look at the terms of the lease • Structural alterations and non-structural alterations – difference in the consent • Need for a licence for alterations • Obligation to reinstate alterations at the end of the term unless otherwise agreed – suggest get your landlord on board with the potential benefits of your alterations
  10. 10. 10 Funding Issues • Tenant may be carrying out substantial works – what is the economic lifetime for those works and when are they written down in the accounts? • Tenant may fund if a longer term lease but current trend towards “shorter” term leases • Possible avenues for funding to include the Green Deal • Role of the Landlord - will they pay?
  11. 11. 11 The Green Deal • This is the Government’s flagship funding programme • Came into effect in January 2013 for consumers • The Golden Rule: – the cost of repayment of the measures is not to exceed the savings – the length of repayment is not to exceed the “lifetime” of the improvements • It has been described as a pay as you save scheme
  12. 12. 12 The Green Deal • Some constraints: – only certain approved works qualify – works vetted through approved assessors – financed through an approved Green Deal provider – works installed through approved Green Deal contractor • Green Deal “cash back” for early adopters – only for residential properties
  13. 13. 13 The Green Deal • Intended to be for both residential and commercial Properties but The Green Deal Finance Company which is the funder for the approved providers only currently provides funding for residential property – the enlargement for commercial property has not yet happened • Commercial tenants will have to wait until this has been enacted before they can access the funding through the Green Deal
  14. 14. 14 Tenant’s Works and Green Leases • The British Property Federation advises: “landlords and tenants should each adopt environmental good practice policies so far as they can do so without adversely affecting the value of their buildings or the viability of their businesses” • A collaborative approach to Tenant’s works is suggested
  15. 15. 15 Summary • Change in the market place • EPCs and The Energy Act and the political agenda • Changes in valuation requirements – EPCs more important • Energy bills for both Landlords and Tenants • Corporate Social Responsibility • Climate change legislation and energy use affects us all – an open and honest dialogue is needed between Landlord and Tenant
  16. 16. 16 Any questions?
  17. 17. 17 Julian Pyrke • Partner • Commercial Property • 0117 906 9421 •