Taking a cost-saving, eco-friendly approach to the buildings you occupy makes sense
The idea of ‘green leases’ has struggled to gain traction in the retail sector, but signs are the concept is now gathering serious momentum.
Marks & Spencer (M&S) is recognised for its green credentials as a result of its ‘Plan A’ eco plan and recently took a further step by launching its ‘green lease policy’ for new store acquisitions, requiring all new leases to include green clauses.
One reason for the sector’s slow progress is a tendency to draft onerous clauses that lead to unnecessary legal negotiations, delays and fees. But clauses that block business will not work in the long term.
The M&S approach is simple and flexible, seeking to achieve a format acceptable to any landlord or tenant. It also creates a framework for making green improvements to buildings, going beyond the traditional service charge model.
However, new buildings only account for a tiny fraction of commercial property space – the vast majority is existing stock. To tackle this, M&S reached agreement with members of the Better Buildings Partnership (a collaboration of landlords working to improve the sustainability of existing commercial buildings) to introduce green clauses, by means of memorandum of understanding, to sit alongside leases of existing M&S stores. The collaboration is the first on this scale and will see 70 agreements signed for M&S sites, ranging from large shopping centres such as Brent Cross in London to small retail parks.
The green clauses, whether in new leases or side memoranda, will facilitate sharing of data such as energy and water use in M&S-occupied buildings to encourage both landlord and tenant to make savings. They also encourage a joint approach to investment in eco technology to further reduce building impacts and costs.
So what’s behind this new momentum? Energy, water and landfill charges are increasing and that trend looks set to continue. Tenants will pay these costs through service charges, so the industry has reached a tipping point where doing nothing could cost money. Landlords are also facing irrecoverable costs, such as Carbon Reduction Commitment charges, creating an alignment with tenant interests.
Eco-credentials are on the corporate agenda for leading property companies. These companies set the direction of the industry, so if you act for a landlord or developer these are the companies to which your client might aspire to sell its investment. Investors may not yet be paying a premium for green property, but many will attach a negative value to inefficient property.
To focus the mind further, the Energy Act 2011 will mean that from April 2018 landlords may be prevented from letting premises that fall below a specified EPC grade. The message is clear – the Government is taking action, but in the meantime the industry has five years to get ahead.
The M&S experience shows that landlords and tenants are prepared to co-operate to improve building performance. Lawyers for both sides can help their clients by drafting the support framework and thus providing the foundation for that co-operation.