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Green Leases: Gone for Good?

Posted on Jun 26, 2012 by  | 0 Comments

Just a few days before your television screens were filled with pictures of Lehman Brothers employees leaving their Canary Wharf office clutching cardboard boxes, containing the dust of their dreams, the RICS held a conference where a paper was presented on Green Leases. This reflected a growing interest in the sustainability of commercial buildings fuelled, in part, by the implementation of the Energy Performance of Buildings Directive leading to the requirement for Energy Performance Certificates. In 2007 the Centre for Research in the Built Environment (CRiBE) at Cardiff University produced a good practice guide with sample clauses. At about the same time the Better Buildings Partnership was set up in response to the Mayor of London's target of a 60% reduction in CO2 emissions by 2025. Various other bodies emerged at the same time all aimed at promoting the energy efficiency of commercial buildings and heralding the arrival of green leases.

The timing of these initiatives could not have been worse and indeed the RICS paper concludes with the prescient warning that green leases “are likely to meet resistance – particularly in a weak letting market - if they are perceived by tenants merely as an attempt to lay off the costs of improvement to short term occupiers.” With the onset of the recession(s), much of the impetus to increasing the sustainability of existing commercial buildings flew out of the still single glazed, energy inefficient, window. Landlords and tenants concerned to stay afloat let matters of sustainability recede into the background waiting for better times. With the Governor of the Bank of England predicting another five years of economic misery those better times look to be some way off.

Does this mean that green leases and sustainable commercial buildings are ideas whose time has come and now gone for good? I think that there are a few hints that this may not necessarily be so. 

The Carbon Reduction Commitment (CRC) Energy Efficiency Scheme while it only affects large private and public organisations coupled with the U.K.  government’s recent announcement of a mandatory carbon reporting requirement (at this stage only for London Stock Exchange listed companies) the introduction of the Green Deal and the formation of the Green Investment Bank will all in their different ways help to increase awareness of the issue of sustainability. Thelaunch by the U.S. Department of Energy of the Better Buildings Challenge and the claim earlier this month by Marks & Spencer to have become the first major retailer to achieve "carbon neutral" status, as part of a sustainability plan that contributed £105m to the business last year are other straws in the wind. 

I think that as the economy stutters into life and as the trickle-down effect of the requirements and competitive pressures on larger organisations spreads more widely, green leases and improving the sustainability of the existing commercial property stock may start to re-emerge. If that does happen the challenge for landlords and tenants will be that identified by the RICS how to share the costs and benefits between their competing interests in a way which is itself sustainable.

Adam More

Consultant

0131 226 8223

adam.more@mbmcommercial.co.uk

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