What is a green lease?

'Green leases' are used to describe leases drafted to support both tenant and landlord considerations around environmentally friendly measures such as energy efficiency in leased buildings. They first emerged in Australia, where they have been used for government-owned and occupied buildings since 2006.

What do they need to contain?

'Green lease drafting' is drafting that requires both the landlord and the tenant to undertake specific obligations with a view to minimising carbon emissions (in particular) which arise from the occupation of property.

Light or dark green lease?

Green lease clauses have been divided by some commentators into 'light green', 'medium green' and 'dark green'. These shades of green are intended to reflect the extent of the obligation they place upon the landlord and the tenant and the range of clauses that can be used.

'Light green' clauses are likely to not be legally binding, require a limited commitment to environmental issues and be limited to improving energy efficiency.

In contrast, "dark green" clauses are likely to be legally binding, require a more significant level of commitment to environmental concerns and cover a wider range of environmental issues.

In practice, producing accepted wording for green lease clauses is difficult due to the differing age and type of buildings and the differing priorities and resources of both landlords and tenants. It is therefore likely that the parties will be selective in choosing the clauses which suit their situation and expectations and is consequently more likely to be a 'light green' lease.

Why are they needed?

The reasons will differ from a landlord and tenant perspective, but the top three most common ones are:

1. More energy efficient premises ought to have lower operating costs which is desirable for tenants and sustains rental value.
2. Some landlords and tenants have internal requirements which set environmental policies and require these to be built contractual arrangements including leases or they may be subject to ESG reporting requirements.
3. Regulation is on the horizon requiring more onerous energy efficiency regulation such as the minimum energy efficiency standards (MEES) giving minimum EPCs (see below) which will need to be built into leases.

What is an EPC?

An EPC is an Energy Performance Certificate which sets out how energy-efficient a property is and gives it a rating from A (very efficient) to G (inefficient) using information about how the building was built and how it is heated. It is intended to give a standardised way to compare properties.

Green leases and Guernsey

At present there is no legislation in place in Guernsey similar to MEES or requiring minimum EPCs although it is filtering down through ESG and sustainability requirements of both landlords and tenants. For example, we recently acted in relation to the lease of a new flagship head office building where it was a condition of the letting that the building have a BREEAM* certified rating.

* BREEAM is an acronym for Building Research Establishment Environmental Assessment Method and is a science-based standard for certification of the sustainability of a building.